How do I work out an IP's "yield"?
- Thread starter Harriet
- Start date
When people talk about yield they are generally talking about gross yield.
Gross yield is the expected rental income divided by the price. Net yield is the expected rental income minus all expenses such as insurance, body corps, letting fees (except interest expense) divided by the price.
If you buy an IP for $300k and rent it for $350 per week then:
$350 per week x 52 (number of weeks in a year) divided by $300k =
$18,200 / $300,0000 = 6.07% gross yield.
Often when people are talking about "return" they are referring to gross yield yes.
Gross yield is the expected rental income divided by the price. Net yield is the expected rental income minus all expenses such as insurance, body corps, letting fees (except interest expense) divided by the price.
If you buy an IP for $300k and rent it for $350 per week then:
$350 per week x 52 (number of weeks in a year) divided by $300k =
$18,200 / $300,0000 = 6.07% gross yield.
Often when people are talking about "return" they are referring to gross yield yes.
Depends on the area and type of property.
Suburban house are typically 4-5% but in a cheap area might approach 6% and in posh areas might be 3%.
Units, serviced apartments, coastal holiday and country town properties might be up to a couple of percent higher. But note that some of these may have limited resale prospects and/or high overheads so just because the gross yield is high does not indicate a sign to buy.
However between similar types of property, other things being equal, a house yielding 6% may well be a good buy in an area where yields are typically 5%. But in both cases both yields are insufficient to pay even the interest so the property will end up costing you money each week - hence you're punting on it increasing in value and/or rents eventually rising.
still confused
Yay my first post - just found this forum a few days ago and its been a great read.
Im confused as to exactly what purchase price I base my gross yield on:
Bought PPOR Jan 2005 for 260k then in Jan 2007 bought my partner out (paid her 90k) - Valued at 440k.
So I turned it into an IP in Feb 2007 - renting it out at $420 per week.
My guess is that I base the gross yield on the price from which I bought out my partner so at 350k. 21840/350000 = 6.2%.
I'm assuming I don't base it on the 260k initial purchase price as it was my PPOR or the 440k which it is worth now?
Any confirmation of the above would be great.
Yay my first post - just found this forum a few days ago and its been a great read.
Im confused as to exactly what purchase price I base my gross yield on:
Bought PPOR Jan 2005 for 260k then in Jan 2007 bought my partner out (paid her 90k) - Valued at 440k.
So I turned it into an IP in Feb 2007 - renting it out at $420 per week.
My guess is that I base the gross yield on the price from which I bought out my partner so at 350k. 21840/350000 = 6.2%.
I'm assuming I don't base it on the 260k initial purchase price as it was my PPOR or the 440k which it is worth now?
Any confirmation of the above would be great.
I would base it as you have shown.
Basing yield on your initial purchase price, or the amount of loan outstanding is probably the mental way people do it, but the yield is usually cited as based on the market value.
For example, if I manage to rent my PPoR out next year by some miracle, based on what I owe the yield would be 16%. Based on the market value it is 5% (of course, you could charge $100 a week rent and really push that number up). Based on what I owe + what I've spent renoing it, it becomes 8%. The odds of me actually renting it out to a decent human being is roughly the same as my odds of selling it within 6 months of moving to another house and being able to claim the capital gains tax exemption on it, so about 0.05%.
Anyone wanna buy a house?
For example, if I manage to rent my PPoR out next year by some miracle, based on what I owe the yield would be 16%. Based on the market value it is 5% (of course, you could charge $100 a week rent and really push that number up). Based on what I owe + what I've spent renoing it, it becomes 8%. The odds of me actually renting it out to a decent human being is roughly the same as my odds of selling it within 6 months of moving to another house and being able to claim the capital gains tax exemption on it, so about 0.05%.
Anyone wanna buy a house?
hey Pushka you must have me confused with someone else - haven't sold my shares but only have a small portfolio.
And thanks Rumple.
So my yield is 8.4% if I base it on purchase price and 4.9% if I base it on what its worth. Still confusing. I'm onto my 2nd tenant now and the first ones were ok but left the house a mess (cobwebs, dirts - nothing that a good two hour clean up couldnt fix)
And thanks Rumple.
So my yield is 8.4% if I base it on purchase price and 4.9% if I base it on what its worth. Still confusing. I'm onto my 2nd tenant now and the first ones were ok but left the house a mess (cobwebs, dirts - nothing that a good two hour clean up couldnt fix)
Maybe site confusion?
There's a member on Aussiestockforums called
It's Snake Pliskin
I assumed it was the same person as well
To get a truly accurate calc; yes.
I always base my yields on what I paid for the property, or if I'm looking to buy; what I'm going to pay including the purchase costs.
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