Net Rental Yields

[Fudge]

Does anyone out there know why american sites generally include the loan interest rates as part of the expenses when determining Net Rental Yields, whereas Australian Sites don't.

For me, to determine 'Net' anything, it needs to weigh up all info, and hence loan interest payments on top of property expenses should be considered.

But in saying this, you would only get a +ve net yield if it was a cashflow +ve property?

Australian sites and some commentators generally just consider only property expenses (not loan costs....even though they are property expenses) when determining net yields.

What do people out there consider "Net" rental Yield to mean?

F

 

[Dazz]

What do people out there consider "Net" rental Yield to mean?

I consider a 'nett yield' to mean = (Gross rent - all property outgoings) / current value


Eg : Buy a house for 100K. Rents for 10K pa. All ownership costs are 2K pa. Nett yield is 8%. If interest is also 8% and you borrowed the lot, then the property is cashflow nuetral.


The definition of nett yield does not take into account interest.


It therefore is able to be used to directly compare what the property is yielding as directly compared with shares and bank interest payable on deposits, as they obviously don't have any outgoings either.


It also is able to be used by people (generally older) who are not borrowing to buy the investment. Think elderly folk buying shares outright.

 

[Mick C]

It's hard to account for the "interest" - because it depends on what interest rate the buyer go with
1. lender
2. Commerical Or resi?
3. Product - LOC? basic loan? etc....


Regards
Michael

 

[BuildingBlocks]

It's hard to account for the "interest" - because it depends on what interest rate the buyer go with
1. lender
2. Commerical Or resi?
3. Product - LOC? basic loan? etc....


Regards
Michael

Exactly.

And also the LVR, or would you just assume a 100% loan?

It is not too hard to work out roughly what interest rates are around at the time of buying, or would an agent be expected to do some sort of legwork and constantly update their listing with new yields depending on the loan products around and any interest rate changes?

If you included interest then you would also need to make sure that they were comparable rates ...also interest only or P&I?

The questions keep coming

 

[Fudge]

Thanks guys for your comments.

I was reading some stuff the other day and when a software program calculated net rental returns, and left loan costs out of the equation, I thought they were not providing a true account of what Net rental is.

Thanks for the clarification Dazz.

Did a google search and couldn't really find anything, hence the question.

My new net rental yields will obviously be much higher now, considering I don't have to include loan costs.

Cheers,

F