In today’s world, many of us are looking for ways to invest and make our money work for us. One of the most popular investments is real estate, as it can provide a steady stream of income while also increasing in value over time. However, it’s important to understand how to calculate the return on investment (ROI) of a property before investing your hard-earned money. In this article, we’ll take a look at how to work out the yield on a property, and explain how to calculate rental yield, capital gains yield, and total yield.
To begin, let’s define what yield means in the context of real estate. Yield is the return on investment of a property, which takes into account both the income earned from rent, as well as the capital gains made on the property. It’s important to understand the yield of a property before investing, so you can make sure you are getting the most out of your investment.
How To Work Out Yield On A Property
Now that we’ve defined yield, let’s look at how to calculate rental yield. Rental yield is the return on investment from rental income alone. To calculate the gross rental yield, you need to divide the annual rental income by the property value. For example, if the annual rental income is $20,000 and the property value is $400,000, the gross rental yield is 5%. To calculate the net rental yield, you need to subtract any associated costs, such as taxes, insurance, and maintenance. For example, if the associated costs are $2,000, the net rental yield is 4%.
Next, let’s look at how to calculate capital gains yield. Capital gains yield is the return on investment from capital gains made on the sale of a property. To calculate the capital gains yield, you need to take the difference between the sale price and the purchase price, and divide it by the purchase price. For example, if the sale price is $500,000 and the purchase price is $400,000, the capital gains yield is 25%.
Finally, let’s look at how to calculate the total yield. Total yield is the return on investment from both rental income and capital gains. To calculate the total yield, you need to add the rental yield and capital gains yield together. For example, using the figures from above, the total yield is 29%.
In conclusion, it’s important to understand how to calculate the yield of a property before investing. By understanding the rental yield, capital gains yield, and total yield, you can make sure that you are getting the most out of your investment. With the right calculations, you can make sure that your real estate investments are working for you.
