There's a big discrepancy between your Return on Capital Invested (is that the correct term?) of 10% and the net yield of 5%, but I think your approach is more nuanced so I might even end up agreeing with you!
The 5% calculation is a great comparison tool if you are considering buying an investment property. You can compare a 5 bed detached house with a flat over shop.
It doesn't tell you what you are getting for your investment if you have borrowings.
The 5% calculation is a great comparison tool if you are considering buying an investment property. You can compare a 5 bed detached house with a flat over shop.
It doesn't tell you what you are getting for your investment if you have borrowings.
Thanks @cremeegg - I've always figured that there's a benefit above net yield as, when it comes down to it, someone else is paying rent to you which you are turning into equity in the property, i.e. the renter is indirectly buying the property for the landlord. Your calculation makes more sense where there is debt is employed.