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Return on Rental Properties
August 12, 2013 at 11:24 AM
There is a quick method of calculating the yield on an investment property. The calculation is the annual rent income divided by the purchase price of the property. For example, if rent is $280 per week ($14,560 per annum) divided by $205,000 purchase price of property, will equate to 7.1% yield.
This yield does not take into consideration the costs of owning a rental property such as rates, insurance, repairs, interest on a loan and maybe property management fees but it is a measure of strength of income compared with other investment properties you may be looking at. For example, you may want to set some criteria for your investment purchases such as you may not want to buy any investment property with a yield below 6%.
Yield takes away the emotion from your purchasing decision and therefore is one measure that should be factored into your decision making and it can also help with setting a value (purchase price) for the property. It has been said "you make your money when you buy not when you sell". If you are thinking of investing in rental properties then seek out advice e.g. by reading about the subject, take seminars or courses (our "How to" section of the "Make Money" course will definitely help) before buying your first investment property.
