What is a good gross yield

[donegal101]

I am trying to sell my house in Balbriggan, Co. Dublin. It is currently rented out as I moved with my job.
I've made the following calculations to try to encourage buyers, particularly those who would want to continue to rent it out.

The rent received each month is €930.

I have €165,000 left on my mortgage and need to sell it for this.

The gross yield therefore is 6.76%.

Is my estimation of the gross yield correct and is is a good rate?

Thanks

 

[LDFerguson]

If there is a good sitting tenant I'd be inclined to highlight that fact as distinct from the yield rate itself. Yields were discussed briefly here but the thread was closed as it's hard to have a discussion on good or bad rental yield without veering into property price speculation.

 

[WizardDr]

The gross yield is often annual rent divided by current market value - you have the mortgage which is not the denominator.

These days yields are north of 8%.

The test for you - look up Daft.ie or one of others - see current market values and see approximate rents

as @LDF points out we are constrained - but the proxy for you is to assess from other data what others are achieving and why your place would get more or less.

 

[LDFerguson]

The gross yield is often annual rent divided by current market value - you have the mortgage which is not the denominator.

I think donegal101 was saying that €165,000 is also the asking price, of necessity and is therefore a proxy for current market value

 

[oldnick]

donegal1
- gross yields on houses -as opposed to apartments - are not good and don't attract those investors who are only interested in an income. Investors may look for capital appreciation but that is -as pointed out by ferguson in post 2 - getting into the realm of property price speculation which is not discussed on this website.

Bluntly 7% gross yield is not great. Any savvy investor knows that this could quickly reduce to about 3-4%% , pre-tax,depending on :-
- how lucky one is with tenants ( do they pay regularly, will they cause damage, will they suddenly disappear)
- property charges, insurance etc could cost 1.000 euros
- repairs,damage other than caused by tenants, decoration, painting

-and, frankly, thee is a bit of work involved in letting property unless one uses a mngt company ,so there goes more money.

The only basis on pricing your type of property is comparing it to other similar properties in your area presently on the market and/or recently sold

 

[marathonic]

If I was investing now, I'd be looking for:

5-year fixed investment mortgage interest: 5.19%
+Maintenance Estimate: 1%
+Insurance/Property Tax/PRTB/Management: 1.5%
+Profit: 2%

The profit would be used to ensure that the amount that I'd have to subsidise a repayment-type mortgage would be reduced to an affordable level - after paying tax due. It's also my reward for taking the risk of the property value reducing further.

So a yield of 9.69% is somewhere in the region of where I'd get seriously interested.

 

[LDFerguson]

If I was investing now, I'd be looking for:

5-year fixed investment mortgage interest: 5.19%
+Maintenance Estimate: 1%
+Insurance/Property Tax/PRTB/Management: 1.5%
+Profit: 2%

The profit would be used to ensure that the amount that I'd have to subsidise a repayment-type mortgage would be reduced to an affordable level - after paying tax due. It's also my reward for taking the risk of the property value reducing further.

So a yield of 9.69% is somewhere in the region of where I'd get seriously interested.

This is a great post. I love seeing examples like this of a methodical, logical approach to investing, as distinct from the speculative rubbish that prevails on so many other websites. Having a method like this of evaluating an investment (and it doesn't have to be property - the same sort of methodology can be adapted for equities, bonds etc.) and THEN applying a certain, limited amount of speculative judgement as to the future prospects is SO much better than listening to "commentators" (professional or bar-stool) telling you "Prices are going to rise in the next 18 months", "gold prices are going to fall next month", "this stock is a Buy" etc.

 

[marathonic]

This is a great post. I love seeing examples like this of a methodical, logical approach to investing, as distinct from the speculative rubbish that prevails on so many other websites. Having a method like this of evaluating an investment (and it doesn't have to be property - the same sort of methodology can be adapted for equities, bonds etc.) and THEN applying a certain, limited amount of speculative judgement as to the future prospects is SO much better than listening to "commentators" (professional or bar-stool) telling you "Prices are going to rise in the next 18 months", "gold prices are going to fall next month", "this stock is a Buy" etc.

Thanks for the kind words

Yeah, too many people just pluck numbers out of the air, like 10%, and say that's what they'd need without any reasoning behind it.

It's the same as a lot of people with life insurance policies of some random number just because it's an even number - like €100,000 or €250,000. If you ask these people what it's to cover, you'll get a generic response like - to provide for my family just in case I were to die.

Life Insurance should rarely be an even number and you should be able to justify the number if asked by stating exactly what financial loss it will be used to cover - such as paying off a mortgage, costs of raising children until 21, living expenses of a partner until state pension age, etc.