# Rental Yields



## Howitzer (21 Mar 2006)

To any investors out there. What was the rental yield of your property when you bought and when did you purchase? 

Would you consider investing at current yields or does that even come into the equation for you?


----------



## BRICKTOP (21 Mar 2006)

Bought 2 bed duplex in Beaumont in Nov 99. Yield then was 7.15%.

Rental being received now for is more or less same as 2000/01 but property value has doubled.

Wouldn't dream of buying now to invest to be honest.


----------



## landlord (23 Mar 2006)

Is rental yield calculated by yearly rent divided by initial purchase price? Do you have to take account of tax paid on the rental income and other typical yearly costs on the property?


----------



## asdfg (23 Mar 2006)

To me the Rental Yield = yearly rent after tax / total cost incl stamp duty 

In other words how much do i get into my hand after investing a certain amount of money 

I'm sure there are many different definitions.


----------



## bearishbull (23 Mar 2006)

asdfg said:
			
		

> To me the Rental Yield = yearly rent after tax / total cost incl stamp duty
> 
> In other words how much do i get into my hand after investing a certain amount of money
> 
> I'm sure there are many different definitions.


 
i think your better using gross yield as investors can write off proits against losses on other properties.yields on investements are usually only quoted gross -excluding tax. although the costs of owning a property such as maintenace insurance etc should be taken into account, so if they amount to 1% of market value of house then it would reguce the gross yield by 1%.
judging by the few responses to this topic i dont think many people are worried about rental yields !


----------



## Howitzer (23 Mar 2006)

bearishbull said:
			
		

> judging by the few responses to this topic i dont think many people are worried about rental yields !


 
Yeah, I was hoping to see what the trend was. But you know dem property investors, always keeping their cards close to their chest!


----------



## Theo (23 Mar 2006)

I use a cash yield figure so it is directly comparable to what i would get in a deposit account.

That is, the net rent divided by the actual cash i had to put into the deal.

I don't invest unless this figure is minimum 10%, don't care how nice the property is.

And just to add, i wouldn't touch property in dublin as an investment at the moment.


----------



## JohnGonne (24 Mar 2006)

Two properties

a) purchased in Jan 2004 getting a 4.75% yield, and that is with below market rent (annuity mortgage)
b) purchased Sept 2005, getting a 4.33% yield, and again this is slightly below market rent (interest only mortgage)

My simple basis is yearly rent / purchase price (excluding stamp duty and taxes)


----------



## gearoidmm (24 Mar 2006)

Why exclude stamp duty and taxes?


----------



## askalot (24 Mar 2006)

gearoidmm said:
			
		

> Why exclude stamp duty and taxes?



Because it would result in negative yield?


----------



## demoivre (24 Mar 2006)

askalot said:
			
		

> Because it would result in negative yield?



No it wouldn't , a lower yield yes -  how can two positive numbers divided into one another and multiplied by 100 give a negative answer


----------



## beattie (24 Mar 2006)

JohnGonne
My simple basis is yearly rent / purchase price (excluding stamp duty and taxes)[/quote said:
			
		

> Why not include the stamp and taxes?


----------



## Howitzer (24 Mar 2006)

demoivre said:
			
		

> No it wouldn't , a lower yield yes - how can two positive numbers divided into one another and multiplied by 100 give a negative answer


 
If you count interest as a cost. If the rental return is less than interest paid to the bank then your profit is a negative number. 

You'd have to get the accountants out on that one though. 

Traditionally this would never have occured but it's more transparent now with interest only mortgages which may or may not cover rental returns.


----------



## gearoidmm (24 Mar 2006)

demoivre said:
			
		

> No it wouldn't , a lower yield yes - how can two positive numbers divided into one another and multiplied by 100 give a negative answer


 
If your outgoings (tax, maintenance and mortgage) are less than your rental income, then you have a negative yield.


----------



## asdfg (24 Mar 2006)

> Because it would result in negative yield?


 
How 

Assumption 

Yearly Rent 12,000
Profit 1,000
Property Cost excl SD 200,000
Stamp Duty 8,000

Using your calc: 
Ex SD & Taxes 12,000 / 200,000 = 6%

Incl SD & Taxes 12,000/ 209,000 = 5.7%

Both positive

Post crossed with prev 3 or 4


----------



## quinno (24 Mar 2006)

Are you talking about yields in terms of the capital value versus the rental income? See thread here

http://www.askaboutmoney.com/showthread.php?t=20354&highlight=yields

Do not get yields confused with what is essentially the profit you wish to make once you're paid the rent and deduct your costs (mortgage, insurance, running costs, etc). negative 'yoield' would obviously occur where you end up in a defecit after paying these.


----------



## demoivre (24 Mar 2006)

I calculate initial  rental yield as  rental income as a % of cost price including outlay. I bought a commercial premises in Jan with a yield of %6.2 ie rent rollover as a percentage of what I paid for the building including sd and legals. AFAIK industry pros. calculate net yield in the same way or gross yield where sd and legals are excluded from the workings.

The calculation of profitiability is far more complex as you would also have to consider the appreciation rate of the property.


----------



## The Punter (24 Mar 2006)

Def of Yield- In general, yield is the annual rate of return  for any investment and is expressed as a percentage. Yield may not be a true return measure because it doesn't account for capital gains or losses. 

E.G The cost of my investment property was the deposit I had to stump up. The actual price of the property doesn't come into it.

So for an initial outlay of 40k I clear 500pm profit. That gives me a yeild of 15%.


----------



## Howitzer (24 Mar 2006)

The Punter said:
			
		

> Def of Yield- In general, yield is the annual rate of return for any investment and is expressed as a percentage. Yield may not be a true return measure because it doesn't account for capital gains or losses.
> 
> E.G The cost of my investment property was the deposit I had to stump up. The actual price of the property doesn't come into it.
> 
> So for an initial outlay of 40k I clear 500pm profit. That gives me a yeild of 15%.


 
And how long have you been a property investor?


----------



## The Punter (24 Mar 2006)

Wouldn't really describe myself as a property investor. Have the second place about 2 years.


----------



## Howitzer (24 Mar 2006)

The Punter said:
			
		

> Def of Yield- In general, yield is the annual rate of return for any investment and is expressed as a percentage. Yield may not be a true return measure because it doesn't account for capital gains or losses.
> 
> E.G The cost of my investment property was the deposit I had to stump up. The actual price of the property doesn't come into it.
> 
> So for an initial outlay of 40k I clear 500pm profit. That gives me a yeild of 15%.


 
I'm not a bean counter myself so I don't know what the definitive for working out yields is, I guess a good accountant can make the numbers say anything. BUT I think the logic of your calculations would mean that you should include all maintenance, tax and interest costs on top of your 40K. And that then your yield should be calculated on an ongoing basis. This is because you're calculating your yield as your outlay versus your incomings. 

This isn't how I would calculate it btw. 

The amount of confusion on this amazes me. If you were to ask 10 shopkeepers how they figure out the profitability of their business they would all give you, more or less, the same answer.


----------



## Neffa (24 Mar 2006)

The Punter said:
			
		

> Wouldn't really describe myself as a property investor. Have the second place about 2 years.


 
It would be great to get your perspective on something. How much profit will you make if the interest rate rises another 1.5% in the next 18 months? Will you still break-even? Is your second place financed interest-only or through a repayment mortgage?


----------



## JohnGonne (24 Mar 2006)

beattie





			
				JohnGonne said:
			
		

> My simple basis is yearly rent / purchase price (excluding stamp duty and taxes)



Why not include the stamp and taxes? 
I was referring to gross yield. Net yield could include stamp duty and taxes, however 

a) taxes may be nil i.e. if a property was s23 or you structured the investment in such a way that you would not incur tax. I would also wouldn't include income tax as it's on the person, not on the property.
b) If your intention is trade property in over a period of time, then stamp and legals should be reduced for the capital gain relief they provide i.e. at 20%.

R/(C+SD) where R=Rents received, C=Cost of purchase, SD=SD & Legals (to be reduced by 20% if you intend to sell within 5 years, say)


----------



## The Punter (24 Mar 2006)

Neffa- Should the interest rates go up by 1.5% i would still be pulling a couple of hundred a month. Interest only mortgage at present. I think I can see where this is going...

Howitzer- Good guess with the bean counter !  A yeild is a simple rate of return. profit/cost of investment


----------



## asdfg (25 Mar 2006)

> A yeild is a simple rate of return. profit/cost of investment


 
You need to define profit and cost of investment

Is profit = profit after tax calc for tax purposes

In a loss situation you have negitive equity

Cost of investment - What about cost to you. This includes Stamp Duty Legal exps fit out costs Fit out cost can be written off over 8 years


----------

