How do you work out return %

P

penny

Hi,

Silly question, but how do you work out what the return is on a property. For eg.

Purchase price - $245,000
Rent - $250/wk (so do i multiple this by say 47wks of the year, allowing for time it's not rented?) = $250 x 47 = $11,750

Rates/BC - $3,360 per annum

So -

$11,750 - $3,360 = $8390 / $245,000 * 100 = 3.4%

Is that right? Anything else I should be doing?

thanks
Penny
 
Hi Penny,

Yeah that's pretty much on the money. You can also work out the gross return by not subtracting the expenses and you can also add capital gain as an option.

Mark
 
Thanks Mark. Is there a rule of thumb for how many weeks rent you should calculate to work out the rent for the year?
 
penny said:
Thanks Mark. Is there a rule of thumb for how many weeks rent you should calculate to work out the rent for the year?
Click to expand...

Hi Penny,

If you're trying to work out gross - use 52.

When calculating net, taking 4 weeks for vacancies is pretty safe, some go higher others lower.

Cheers,
Jen
 
Also remember that agents' fees, repairs, water will reduce your return further

Depreciation may help your cash flow
 
Penny, there's no way to do what you want to do with short cuts.
Future returns won't be the same as this year's, because interest will be eroded by the rate of inflation (ignoring rate rises), rents will hopefully follow inflation up, as will many costs.

Further, return can be based on
the original price of the property
the original total cost of acquisition
the original capital invested alone.


There are several spreadsheets floating around that analyse these trends over several years. But if you just focus on the first year's figures, you will miss the 'ah ha' moment of watching cash flow gradually become positive with time.
 
Tika,

Geez, ... I don't like that calculator .... lol ... With one of my IP's I receive 6% gross rent yield and it told me to "sell" ...... no way !!

Martin :cool:
 
you have to make sure all fields are filled in, if you have no monthly expenses than put a zero.. otherwise you will get a false answer

you should also add other expenses eg. maintenance, taxes, starta , 5% for vacancy etc
 
that is a dumb calculator and i am surprised that the guys at forbes would do something like that

what they do is negate capital growth.

put in any equity in that calculator and they'll say sell... so what are we going to have now? every investor long cash?
 
want2bewealthy said:
A 2.7% yield...
I dont think so...

Whats going wrong with my calculation?

Property value $255k
monthly rent $1070
property manager 11%
whats my yield?
Click to expand...

Is the weekly rent $267.50

or $246.92 :confused:

Is $1070 for four weeks or a calendar month ?

I got 6% Yield at $255k value and $268 p/wk rent, rented for 52 weeks/pa

Tax, depreciation, managing fees etc not included (otherwise you may as well look at PIA and IRR as well).
 
redwing said:
Is the weekly rent $267.50

or $246.92 :confused:

Is $1070 for four weeks or a calendar month ?

I got 6% Yield at $255k value and $268 p/wk rent, rented for 52 weeks/pa

Tax, depreciation, managing fees etc not included (otherwise you may as well look at PIA and IRR as well).
Click to expand...

I get just under 4.5% yield net (PM fees only) - rent would be $246.92 per week (if tenants pay monthly at $1070 which is what I'm presuming), less 11% (?? seems very high!) or $219.76 after fees.

Cheers,
Jen
 
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