fbpx

How Do I Calculate Yield On An Investment Property?

When you’re looking for an investment property, you are often either looking for capital growth or yield (ideally a positive cash return).  There’s a quick and easy trick that we, at The Mortgage Lab, use to calculate yield on any property we’re looking at.

Calculating Yield

Previously, we have looked at The Rule of 72 to calculate how long it would take to double the investment.  This month, we look at how to quickly calculate the yield on a property.  You’re going to need the following bits of information:

  • the purchase price &
  • the rental income per week

As an example, a $600,000 property might receive $500 per week rent.

$500 * 52 weeks is $26,000
$26,000 / $600,000 is 0.043 (or 4.3% return).

So this property has a 4.3% (gross) return based on rental income to value alone.

Information from the yield

A 4.3% return would cover most Principal and Interest payments (currently) but probably won’t cover additional expenses like insurance and rates.  Each individual property requires a different amount of income to get positive cash results.  What we’re looking for is a quick calculation to see how one property compares to another.

Subscribe to our Newsletter to receive all our latest articles

A quick calculation of yield

Let's say that 5% yield is a decent baseline for yield on a property.  If we're looking for yield, anything below that is probably not worth investigating any further.  What is a quick calculation to get 5% return?

Well, very approximately:

if weekly rental is 1/1000th of the value of a property, the yield is around 5%

In the example above, the house was worth $600,000.  If the rent had been $600 per week, then:

$600 * 52 weeks is $31,200
$32,000 / $600,000 is 0.052 (or 5.2% return)

 

The 2 second calculation of yield

So for any property you are looking to purchase, knock the last 3 numbers off and you have the rent required to get to around 5%.  A $750,000 property needs a $750 per week rent.  A $400,000 property needs a $400 per week rent.


If you're looking to buy an investment property, our ebook is the tool you need.

Are you looking for investment property?

It's not always easy to get started. What do you need to know? 

We've put together the most important things to know when you're looking at buying your next Investment Property and we are giving it away for free.

Download our free eBook "Your Next Investment Property"!

Latest Posts

3 Things Investment Property Buyers Can Do To Get Ready

So you’ve decided to purchase an investment property, here are first 3 things you can do to get the ball rolling.

Read More

What does a million dollars buy you in the major cities

With Covid-19 lockdowns, working from home has become the new norm. It’s highly probable that buyers who were previously looking to purchase in the larger cities will now be looking…

Read More

Preparing For Your Mortgage - Documentation

Getting a mortgage can be stressful and a lot of that stress is caused by waiting for the bank to make their offer. You can significantly reduce wait time by…

Read More

Revolving Credit, Floating Account, Mortgage

Most homeowners are familiar with fixed-term mortgages.  Over 80% of NZ mortgages are on some sort of fixed-term; the majority are currently for 1 to 2 years.  But it’s easy…

Read More