Difference in Rental Yield Calculation

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From: E L


Greetings All
I know the calculation of rental yield has been covered in significant detail on the forum, but I came across a formulae which varies somewhat and was included in information on a property organisation's website.

The formulae I've been using is rent x 52 divided by purchase price x 100. And to get a VERY ROUGH calculation of a 10% yield you basically need the purchase price to be half the rent. ie. rent at $250 and price $125k.

NOW, I might be wrong in my calculations but the information I downloaded from www.brisbanepropertyinformation.com.au has a slightly different variation on the formulae.
It is rent x 90% x 5000 divided by purchase price. Using above figures - rent $250 and purchase price $125k, I get a discrepency of 1.4% which is quite significant.

The only thing I can think of is, the latter formulae is more conservative and factors into account a safety net for the investor. Would the $5000 take into account purchase costs etc - but wouldn't this vary somewhat depending on price??
Look forward to hearing people's comments and thoughts.

Cheers
EL
 
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Reply: 1
From: Andrew Firmage


EL,

I would assume that the 90% is to allow for 10% maintenance costs, fees, etc and the 5000 is for two weeks vacancy each year (50 weeks x 100 instead of 52)

Any other suggestions?

Andrew
 
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Reply: 1.1
From: E L


Andrew
yep, that sounds like what it might be. Thanks for the feedback.

Cheers
EL
 
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Sim

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Reply: 1.1.1
From: Sim' Hampel


Really, if they are going to go to that much trouble with the forumla, they should also be adding purchase costs (such as stamp duty) to the purchase price.

Personally, the simple rent*52/purchase_price as a percentage (or rent*1000/2 for a 10% yielding purchase price) is good enough for on-the-run calculations. Anything more detailed and you might as well just use something like PIA - or make up your own detailed spreadsheet in Excel.

sim.gif
 
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Reply: 1.1.1.1
From: Even Steven


I always include stamp duty in the purchase price. After all it is part of the cost of acquisition.
 
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Reply: 1.1.1.1.1
From: Stirling Reid



I am often comparing new strata titled with pool etc and new non strata titled in the same area so I always take strata fees off the rent.
ie $200 pw - $30 pw = $170 pw
So I am comparing apples with apples.
 
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Reply: 1.1.1.1.1.1
From: E L


Thanks Everyone
Sim - very true. The simple formulae is good enough for me until I get back to my pc to use PIA.

Cheers
EL
 
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