a few basic rental yield calculation questions?

[mixedup]

Just to do some "rough" calculations when looking at a rental property any advice on any of these?

a) What's the term for the final after tax "profit" divided by property value? Is it Net Yield? i.e. if property was $500k and annual income (rent - expenses - interest + tax benefit) was say -$5k, this would be -1%.

b) I thought this figure from a) above is useful as it kind of implies the annual growth in property you need to "break even" so to speak correct?

c) Rental yield typically means Gross Rental Yield correct? i.e. Rent Per Year(including effect of vacancy rate) / Property Value.

Note just wanted something in a simple spreadsheet that does a rough calculation only re these questions...

d) rough rule of thumb for purchase costs (not stamp duty, but other such as conveyancing, legal, cost to setup loan): ~1.6% ?

e) rough rule of thumb for rental expenses (not include interest): ~25%

f) rough rule of thumb for depreciation: 0.25% to 2.5% depending on age (i.e. older to new house)

Thanks

 

[Paul@PFI]

The "profit" on a property can take several forms. Are you thinking about the total of all cashflows ? Or are you referring for tax purposes ? There are some key differences and understanding the issues may influence your thinking.

- Depreciation and CA deductions which are allowanble as a tax deduction for you you dont outlay any cash.
- Some cashflows outwards which are non-deductible.
- Some cashflows outwards which are deductible over a short period of time (2, 3, 4 or years)

Good article on yield here. It doesnt include loan repayts or interest. You must be thinking why not ? Well yield is meant to represent the property EARNING potential ignoring the financial position of the owner. It is a useful indicator for all investors to compare properties prior to financing decisions. eg : A property at Ryde with a 11% yield is obviously different from another a unit in Parramatta at 7%. The factors underlying yield need to be understood eg : Ryde may be a dual income prop home with a large granny flat with great views over the valley to Homebush etc.

 

[mixedup]

The "profit" on a property can take several forms. Are you thinking about the total of all cashflows ?

Re my question a) - I was just after advice re what would be the correct financial term (if there is one?) for the specific yield calculation formula that described (with an example calculation - see my original post). Let me know if you need me to clarify the formula & example further.

 

[Paul@PFI]

Your "net yield after tax" ?? Its not like its a legal term. Call it what makes sense. You are the only user of the information.

As far as "rule of thumb"...Every length of string is individual. And its your scissors that choose the length.