A side question with an example:

You buy an IP for say $100K, paying 20K cash and 80K loan. Aditionally, you pay 6k buying costs (cash).

Now you are got rent $100pw (gross). All the expenses (PM, council, water, maintenance, strata) are $20pw, so the net rent you get is only $80pw.

In this case, for calculation of yield, what is the numerator and what is the denominator.

I take $80*50 weeks as numerator and $106K as denominator for calculations.

Any other opinion?

Regards

Sanjay

I don't know the diff between a numerator and a denominator.

I work out the yield as being the % of the total purchase price.

So, if the property is sold for $200k, and the rent is $230 p/w, then the yield is:

$230 x 52 = $11,960.

$11,960 / $230,000 = .052%

.052 / 100 = 5.2%

Now, if you want to work out the real

*cashflow* as a basic guide, subtract 20% of the rent from the total rent to get the nett cashflow of that.

20% is approx what the holding costs (other than loan repayments) will be each year. It factors in 2 weeks vacancy as well, so if you have no vacancy you are slightly ahead on this.

The amount left is then subtracted from the loan repayment to get the nett cashflow (before tax).

This is usually when people really get a shock, as they see what the actual money in, money out figure is before they get their tax return.

A variation on the tax paid from your PAYE can be arranged by your accountant and this will soften the blow a bit.

I this sort of what you were hoping to find out?