Why do so many people calculate gross returns?

[ZachAnSel]

gross yield is can be done in seconds in the head, very useful to quickly filter out noise

net yield will require spreadsheet, so ideally only doing few of them

Thats right, I use to exercise my brain by doing net calculation all the time.
However with net calculation, I feel less surprise.
Today easier to get approx rates, water, strata, insurance, PM fees, etc. We can get that info over the phone or web

At the end you will do net calculation anyway, why dont just upfront?

 

[D.T.]

At the end you will do net calculation anyway, why dont just upfront?

I don't, I'm happy with a gross yield. The net doesn't mean much to me, I don't really care if it's plus or minus 25 bucks a week.

 

[Arun Bhuta]

Gross yield is good for sales person and purchasing people use as first pass for filtering bad property or locality.

 

[Deltaberry]

People talk about gross yields to fool themselves, especially people who buy OTP and disregard exorbitant body corporate fees which slash another 1% off your yield.

 

[Dazz]

Have no idea.....I always use net yields.

 

[D.T.]

Have no idea.....I always use net yields.

For your resi props?

 

[ok180]

net can vary a lot.

For example. 2x properties of a similar age in the same area. One is worth 300k the other 600k. They are both going to have very similar expenses in terms of insurance, rates, water service charges etc. Difference is the 600k one is likely bringing in double the rent while the fixed costs are the same for both. Sometimes the cheaper properties can be deceptive in terms of the amount you end up having to deduct for fixed costs regardless of the property.

 

[neK]

I use net yields, but i generally find people use gross yields to make the product (or themselves) feel better. To calculate it quickly, I've built a spreadsheet with specific variables that I can key in and work out if something is worthwhile (allows me to work something out within a minute or less).

On another tangent, how do you guys quote their returns and how do you think others generally quote it?

For example, I purchased a property in 2000 for $300k and its rental income is $250 per week. Therefore my gross yield is 250 x 52 / 300,000 = 4.33%.

Fast forward to now, I have no idea what its worth, but i guess it could be sold for $650k and its currently renting at $600 per week.

Do you say
$600 x 52 / 650,000 = 4.8% or
$600 x 52 / 300,000 = 10.4%

Remember, $650k is merely a guess, $300k is the only thing that is definitive because thats what I paid for it.

 

[FelixL]

At the end you will do net calculation anyway, why dont just upfront?

Being lazy, time poor and avoiding being overwhelmed in the initial search

 

[FelixL]

I use gross yield to quickly check if needed to sell too

If gross yield drop below 5% = sell is my rule to be lazy and rational

 

[HotRod]

I use gross yield to quickly check if needed to sell too

If gross yield drop below 5% = sell is my rule to be lazy and rational

I take it the value is based on the loan??

Why sell if the gross yield is based on the selling price is less than 5% but the gross yield on any outstanding loan might be 10%???

You go from putting money in you pocket to taking it back out.

 

[Dazz]

For your resi props?

No, that's just depressing.....with the large land tax bills, if I use net yields, it ends up being a negative number.

Negative net yields, ahhh.....that wonderful zone where you own the asset outright, no loan to pay off, whilst someone else lives there enjoying your fully funded maintenance program.....at the click of their fingers....at your expense.....whilst you get to chip in the difference so they can continue to live there.

Yes, now I remember why I stopped buying those things over a decade ago now.

 

[FelixL]

I take it the value is based on the loan??

Why sell if the gross yield is based on the selling price is less than 5% but the gross yield on any outstanding loan might be 10%???

You go from putting money in you pocket to taking it back out.

its based on the current sale price

even though against original loan might be much higher RR, there is opportunity cost on the unearned equity gain and cashing in on the profit before a crash (since at <5% gross means net is <3% usually, which is unsustainable poor return)