Rental Yields

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%.

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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.

The Punter said:

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

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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?

beattie

JohnGonne said:

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

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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)

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

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

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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