Compare a property’s expected rental income with its purchase price or current value, then allow for the costs of owning it. The worked example below shows how gross and net yield differ.
Gross annual yield is weekly rent multiplied by 52, divided by the property value, then multiplied by 100. For example, $600 a week on a $600,000 property gives $31,200 a year and a gross yield of 5.2% before expenses.
Net yield subtracts the annual operating costs you include before dividing by the same property value. Allow for rates, insurance, management, maintenance, vacancy and any body corporate charges. An estimate is only as reliable as its assumptions; it is not a forecast of capital growth or a substitute for finance, tax or investment advice.
Check borrowing costs, tax, purchase costs and major repairs separately. A yield percentage is not the same as cash available after mortgage payments.
If annual operating costs were $8,000 in the example above, net operating income would be $23,200. Dividing that by $600,000 gives a net yield of about 3.87%, before borrowing costs and tax. These are illustrative figures, not a rent estimate or a forecast for a particular property.
For rental-property and management enquiries, contact Ray White New Era Property Management on 03 381 0311. For help buying or selling, contact the Next Step sales team.