Landlord advice - Do you know your numbers?

As a property investor it is essential that you know your numbers.  When people talk about a property yield or return on investment (ROI) , what does it actually mean? These figures are crucial in assessing the viability of a property purchase whether you are focusing on a cashflow outcome, or the capital appreciation of a property. 

 

 

Simply put, the yield on a property is calculated as the annual return on the capital investment and is usually expressed as a percentage of the capital value. It can be can be calculated in several ways but for simplicity we will deal with the two most common ways - Gross Yield and Net Yield. There is a simple formula to work these figures out.

 

Gross Yield 

Gross yield as the name suggests, is the income return (as a percentage) on an investment before expenses are deducted.  It can be calculated by dividing the property’s annual rental income by the property value. 

Gross Yield = Annual Rent/Property value

A simple example could be:

Monthly rent = £800.00 

Annual rent = £800.00 x 12months = £9,600.00

Property value = £225,000.00

 

Gross Yield = £9,600.00/£225,000.00 = 4.2%

 

Net Yield

Following on from above, Net Yield can be calculated by deducting your operational expenses from the annual rent and then dividing that figure by the property’s value.

Net Yield = (Annual Rent - Operational Expenses) / Property value 

 

Success in property investment is a numbers game!

 

 Alex Britchfield | Partner | Davies & Partners