# Calculating rental yield



## Aesop (28 Aug 2007)

It's one of those terms everyone uses but I can't find a proper defintion.


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## ClubMan (28 Aug 2007)

perhaps?


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## Bez (28 Aug 2007)

Annual Rental Income divide by Market Value


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## Aesop (28 Aug 2007)

None of these links provide an answer. (the first one contains links that don't work)

Some suggest yield is annual rent/current value

Some say you include SD

Some say it's your yield as your outlay versus your incomings (if this is the case then do you only include the interest only portion of the mortgage repayment or all of it)

Some say you take tax relief into account some say you don't

Some say the devil is dead, me I'm just confused


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## Bez (28 Aug 2007)

It can be calculated whichever you want...it depends on which one you want to calculate.


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## Aesop (28 Aug 2007)

So if someone mentions an "annual rental yield" that is too vauge a term to know how that figure was arrived at?


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## Howitzer (28 Aug 2007)

Aesop said:


> So if someone mentions an "annual rental yield" that is too vauge a term to know how that figure was arrived at?


 
Exactly. You really need to know what are the all the outgoings and the audited income and then you can draw your own conclusions. If the income isn't audited then it's just pie in the sky.


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## Bez (28 Aug 2007)

Yes, it would depend on what they factored in and out, it's all esttimates anyway.


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## tyoung (28 Aug 2007)

Would return on invested capital not be a better way of looking at a rental property?  Something like annual rent minus annual costs( interest, insurance, maintenance costs etc) divided by invested capital( whatever you put down when you bought the property including SD, fees etc) divided by 100.
 This would show your return or potential return on any property which is surely the way a business would look at any potential investment oppertunities.


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## Bronte (29 Aug 2007)

If it's annual rental divided by market value, is that the current market value or the price you originally paid for the property?


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## Howitzer (29 Aug 2007)

Can open. Worms everywhere.


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## Aesop (29 Aug 2007)

Thanks for the clarification. Let's not start a debate on what's the best way of calculating something that is not defined. As bez said you can calculate any way you want to.


Howitzer, worms collected and shoved firmly back in the can!


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## demoivre (30 Aug 2007)

AFAIK initial rental yield is calculated in a standard way as annual rental income as a percentage of the selling price. Occasionally, but less common in my experience, initial rental yield is calculated by expressing the annual rental income  as a percentage of the selling price inclusive of acquisition costs, which would obviously lower initial yield.


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## Cityliving (31 Aug 2007)

I`m  not sure how many variations you can have but the most valuable way to see how your own finances are as I see it is to use the total amount you paid for the property (SD etc) and divide your yearly rental income (less your costs insurance etc). If you dont remove your costs you could get a healthy figure but whats the point if your insurance and other costs eats away all your profit?

If you had a bond and it made 10% in a year you wouldnt say 10% yield you`d say 10%-DIRT wouldnt you?


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## FintanPhelan (7 Sep 2007)

if you pay €300,000 for a house and it generates an annual rental of €12,000 then the 12k is 4% of the 300k, thats a 4 % rental yield, I would say to you the rental yield is worked out on the purchase price as if you based it on market value rental yield would only be a notional figure with no real meaning. For example if you bought a property twenty years ago and worked the rental yield out on todays market value the figure to you is useless. In that case you might work it out on whatever mortgage is left on the property, as thats in effect is the price you have to pay to own the property outright today today. When talking to an investor you work out what their rental yield is from what they have to pay from the house.


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## ein (8 Sep 2007)

Aesop said:


> Some say the devil is dead


 and buried in Killarney


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## New_Buyer (8 Sep 2007)

FintanPhelan said:


> if you pay €300,000 for a house and it generates an annual rental of €12,000 then the 12k is 4% of the 300k, thats a 4 % rental yield, I would say to you the rental yield is worked out on the purchase price as if you based it on market value rental yield would only be a notional figure with no real meaning. For example if you bought a property twenty years ago and worked the rental yield out on todays market value the figure to you is useless. In that case you might work it out on whatever mortgage is left on the property, as thats in effect is the price you have to pay to own the property outright today today. When talking to an investor you work out what their rental yield is from what they have to pay from the house.



I agree, I think you need to use the current market value of the property.


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## serotoninsid (8 Sep 2007)

If thats how you work it out, whats regarded as a good rental yield then?


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## FintanPhelan (18 Sep 2007)

above about 5.5%


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## asdfg (18 Sep 2007)

> if you pay €300,000 for a house


 
The 300K should include all costs incl SD solicitors fees auctioneers fees etc. 

It is the return on your total investment


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## Mr Sparkle (22 Sep 2007)

Assuming a mortgage is required, achievable rental yield is worked out to see whether it is feasible to purchase a buy-to-let property in the first place. The idea of ongoing yield is meaningless for an owner as the capital growth is an unknown. Even if current property value can be approximated, the rental yield is misleading (unless intending to sell). For example a rising property value (assuming stable rents) would equate to a diminishing yield, and continuously high yields a sign of low capital growth. In any case, most buy-to-lets on a mortgage give you pocket money rather than income, regardless of supposedly great yields. Yields and costs start being worthwhile through the process of gearing property, rather than being evaluated on the basis of one property with a mortgage.


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## z104 (14 Nov 2007)

It should also be thought of as a long term investment. Eventually the mortgage will be paid off and you will have mortgage free income minus income tax forever afterwards. Or you could just sell it and pay the capital gains tax.


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