JpcashflowParticipant@jpcashflowJoin Date: 2007Post Count: 575
Hi every one,
Just a general question, how does every one calculate yield?
Some people my base it on the rent vs purchase price & some calculate it by rent vs purchase price/set up cost / holding cost.CatalystParticipant@catalystJoin Date: 2008Post Count: 1,404
For general I base it on ALL purchase costs (eg purchase + stamp duty + buy costs) and rent.
But you need to compare apples with apples. For example a unit may have a higher yield than a house but have high strata fees.
Yield is just a number, which in isolation doesn't mean much.
I'm more interested in the whole picture. Money in/money out. How much will it cost me to hold or in the case of a CF+ property- how much will it put in my pocket.Jamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069Catalyst wrote:For general I base it on ALL purchase costs (eg purchase + stamp duty + buy costs) and rent.
+1 that's how I do it too.
JamieBennyModerator@bennyJoin Date: 2002Post Count: 1,376
Solid answers already – to add to them, I would say a "Rent vs purchase price" yield calculation (or Gross Yield) is useful when deciding whether or not a prospective purchase deserves any more of your time. e.g. your goal "might" be to only buy properties that produce a gross yield of 7% and above (you pick the number).
So gross yield does have its place – horses for courses…. But like the others said, the really meaningful yield is the Nett Yield (all incomes and expenses vs cost price)
BennyTerrywParticipant@terrywJoin Date: 2001Post Count: 16,190streamlineinvestingParticipant@streamlineinvestingJoin Date: 2010Post Count: 171
I agree with the earlier posts, you really need to take into consideration all the costs associated with maintaining a property to calculate numbers effectively, such as rates, strata, utilities etc to be able to calculate yield.
But as was said before, yield is just a number, it does not mean much and you can manipulate numbers very easily to make them say what you want. At the end of the day you want to see how many dollars are coming into your pocket or out of your pocket.