Originally posted by saucy gibbon
Kristine,
Isn't this a net yield ?
Or is it ROI (due to the inclusion of tax benefits.
I don't think its gross yield.
Actually, you saucy thing, it's none of the above
A gross yield (on anything) is the cash amount realised, usually the actual amount of the rent
The net yield is the money received less any direct expense, in other words what's left in the pocket
The Return on Investment is the % against capital involved, such as when a deposit of $10,000 is used but the interest payments are met by the rental income and there is $250 per year left over, then the ROI is 2.5% (being $250 / $10,000 per annum), or if looking at the balance sheet and the property has increased by $10,000 in value ($10,000 / $10,000 = 100% ROI)
So I guess my calculations would give me the 'effective yield' of the investment, and I used this process to illustrate the difference between the lease on the serviced apartments I was selling and the usual return based on a regular residential lease on regular apartments which are sold vacant and it's up to the owner to rent them out and out of that rental income all the other expenses need to be paid.
For example, my Bank purchase price was $220,000 (many moons ago) and the rent is $26,000 (11.82%), but the tenant pays insurance, all rates and general maintenance, worth approx $3,000 per annum (there is no body corporate), so the effective yield is $29,000 or 13.18%.
Conversely, on a residential property bought about the same time for $190,000, which now returns a rental of $19,240 (10.13) I pay approx $3,000 per annum in outgoings, which reduces the yield to 8.55% before adding back the depreciation benefits (which I don't have current figures on so won't do that now in this example).
True cost or return is made up of many factors and is often distinctly different from gross or net and should include opportunity cost but right now I think I'll have a cup of tea and leave you to your calculations!
Regards
Kristine