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How do I work out yield please?

Discussion in 'General Property Chat' started by wylie, 10th Jul, 2015.

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  1. wylie

    wylie Moderator Staff Member

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    Can somebody please post a quick way to work out yield on a property?

    Or tell me what it would be with these figures please-

    Purchase price $400,000
    Deposit $70,000
    Rents for $400 pw
    Body corp $1200 pa
    Rates and utilities $2000 pa

    Should I work out yield ignoring the deposit?

    I know these questions are possibly basic but I don't usually go into yield calculations.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    (400 * 52) / 400000 = 0.052 = 5.2%
     
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  3. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    As DT showed.

    (weekly rent) * 52 / (purchase price)

    For purchase price, most folks use actual purchase price. Some use how much they paid minus deposit. And others use 105% of purchase price if they borrowed all purchase costs as well.
     
  4. Bran

    Bran Well-Known Member

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    Knowing where you shop, I'd do it. ;)



    PS NOT an expert
     
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  5. Hodor

    Hodor Well-Known Member

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    Definitely work it out without deposit - D.T.'s example is simple gross yield.
    Allows quick comparison for apples and apples.

    You can do all kinds of fancy things for net yield taking into account different expenses like you have listed along with vacany, management fees, estimated maintenance, insurance etc. The list goes on.

    What is important is that you compare apples and apples so I like a basic calc like D.T.'s but I minus say 20% from the rent for expenses, depending on property type, when working out rough holding costs. If I need to be more specific than that to make the deal work maybe I should be looking elsewhere.
     
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  6. C-mac

    C-mac Well-Known Member

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    There is gross yield and net yield figures too. Other expenses also need to be considered here beyond property manager and strata fees. Things like maintenance , council, annual vacany allowance (rainy day), insurances etc. Should all be added to your spreadsheet calcs.
     
  7. Beelzebub

    Beelzebub Well-Known Member

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    Use this site and quickly work out yields for all your scenarios: http://propertycalculator.net/calculators/rental-yield.aspx

    Purchase price = 5.2%
    Purchase price less $3200 in fees mentioned off yearly rent = 4.51%
    Loan amount (purchase price less 70k deposit) = 6.3%
    Loan amount (purchase price less 70k deposit) less the $3200 in other fees mentioned = 5.47%
     
    Last edited: 10th Jul, 2015
  8. wylie

    wylie Moderator Staff Member

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    Thanks everyone. I've found something of interest for a family member and on the figures (assuming he can get it for this price) it would mean cash-flow positive by about $30 per week (self-managing). This may be eaten up in maintenance but it gives a little leeway and is better than being negative, especially for a nervous first-timer.

    Much appreciated.
     
  9. Ed Barton

    Ed Barton Well-Known Member

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    Gross yield? Net yield? Include financing costs? Anticipated vacancies, maintenance etc? Purchase price? Current value?

    For me, there are two main reasons to calculate yield:
    1. Comparing properties to purchase. Two properties might have the same gross yield but one may have a better net yield as one might have very high BC fees, for example.
    2. Determine whether to hold or sell assets. Can I get a better yield elsewhere? In this case it's very important to use current values.

    Of course there are other considerations. I might expect that rents on a currently poorly yielding property are going to skyrocket. Or I might expect a currently good dividend yield on xyz ltd is about to take a nose dive in earnings.
     
  10. TyroneS

    TyroneS Well-Known Member

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  11. C-mac

    C-mac Well-Known Member

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    Thanks Tyrone, that's a handy calculator :)
     
  12. Coota9

    Coota9 Well-Known Member Premium Member

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    'Yield" is what I generally do to my wife's numerous demands
     
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  13. rhinsor

    rhinsor Well-Known Member

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    Why wouldn't you add the deposit to the calculations?
     
  14. HUGH72

    HUGH72 Well-Known Member

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    Because yield is a guide which can be used to compare what are otherwise similar properties IMO.
    The size of any deposit will obviously alter your after tax return and cash flow but it doesn't alter the basic rent vs price calculation. As others have already commented you could pay cash for a property with no loan but this doesn't alter its yield
     
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  15. wylie

    wylie Moderator Staff Member

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    I have run the numbers on several properties to ascertain out of pocket to hold each one. I have added buying costs, taken off the deposit, added annual body corp, rates, utilities and insurance. With a $70K deposit it is reasonably easy to find cash flow neutral properties.

    It gets this person into the Brisbane market before (if) the market starts to move upwards quickly, in which case the deposit doesn't get them as far as buying now will.

    So I guess I didn't really need to know how to work out yield. I am feeling the pressure of wanting to show someone why this townhouse is a better buy than that unit and why they cannot afford a house in the same area.
     
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  16. K_Point

    K_Point Member

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    Please indulge a newbie.

    Net rental yield = [(Annual rental income (50 weeks) – Annual expenses) / Total property cost] x 100

    My annual expenses are always more than my rental income so I always seem to be getting a negative number. Im hoping im doing something wrong.

    Any suggestions?
     
  17. bythebay

    bythebay Well-Known Member

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    Try taking our mortgage payments in annual expenses?
     
  18. Gingin

    Gingin Well-Known Member

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    Don't use P&I in your calcs. Just I.
     
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  19. Inov8ive

    Inov8ive Well-Known Member

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    Can I suggest an 80k deposit in order to insure 80% LVR? You would probably need to pay LMI based on the numbers you quoted.
     
  20. Scott No Mates

    Scott No Mates Well-Known Member

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