Property Investment Yield
What is Property Investment Yield?
Yield is the annual return you get on an investment against the purchase price. An example of a yield would be as follows:
You buy a house for say, £200,000 and you receive £1200 pcm rent – the yield would be calculated as follows:
£1200 (rent pcm) x 12 = £14,400 rent per year
/ £200,000 (purchase price)
x 100 (for percentage) = 7.2% yield
What Yield some I look to achieve?
This is always a difficult one to answer – with interest rates being so low, then anything above 1/2% is a bonus, but as an Investor, we would not recommend you look at anything below 5% yield.
When would I consider anything with a lower Yield?
Again, a matter of choice, but sometimes you have to weigh up your “Return on Investment” or RIO as we call it – for example, if the property could facilitate a leverage type of deal, whereby your investment was substantially lower, then this would give a much greater ROI – this used to be common place with cash back deals that developers used to offer.
Another example would be if the property was a “Refurbishment” which you were looking to “flip” for a nice profit, once it was completed – always the danger with “flipping” is will the property sell once the works have been done, therefore research beforehand is crucial or you could be supporting a property you didn’t intend to keep or selling at a much lower price.