What is Property Yield and why is it so important to consider when buying a property?
Property yield is calculated as a percentage of what is taken in rent vs. the purchase price of the property. The yield is a simple equation: for example if you paid £100,000 for your property and you got £7,000 per annum in rent the yield would be 7% per annum.
The yield is based on the gross amount taken in receipts and does not represent a profit.
The profit calculation is done after the gross yield has had all the costs taken out and that then is the net profit or net yield.
i.e. £100,000 property cost.
£7,000 per annum rent = 7% gross yield.
£3,000 repairs costs = £4,000 profit
The net yield is therefore 4%.
It is imperative when making an offer on a property you can establish what the costs of running and maintaining it are, because although the 7% yield rate is good in comparison to current savings rates of perhaps 2% or 3%, the costs can bring down the margins to show a negative net yield.
One of the biggest killers in a yield based investment can be hidden costs and there are none worse than expensive management fees and service charges applied to leasehold flats. Do not forget to incorporate these into the rent calculation.
When our advertisers list their properties on RightYieldUK they use our listing calculator designed to show the potential Property Yield Property Value / Rent per Year.
As a buyer you may want to consider all your fees with this more detailed calculator, just type in your figures and click "calculate".