How to calculate yield

Mrs_pbradley936

Can somebody tell me how often you should re-calculate the rental yield? For example a flat I own cost £72K a few years ago, at today's prices it would about £130K it is let for £650 per month. I can work out the yield but am puzzled about which price I should use and if it is today's how often I should update the calculations.

If I use the original purchase price the gross yield is 10.8%

If I use today's purchase price the gross yield is 6%

nearlynew

% Yield is calculated by dividng the annual rent by the current value and multiplying by 100

In your case £7800/130000 x 100 = 6%


As prices fall, the yield goes up

Mrs_pbradley936

nearlynew wrote: »

% Yield is calculated by dividng the annual rent by the current value and multiplying by 100

In your case £7800/130000 x 100 = 6%


As prices fall, the yield goes up

Many thanks but how often are you supposed to update your calculations? Every year? When you want to sell? Is there a legal obligation to keep this information available to anyone?

CLAPTON

Mrs_pbradley936 wrote: »

Many thanks but how often are you supposed to update your calculations? Every year? When you want to sell? Is there a legal obligation to keep this information available to anyone?

why do you want to keep the info up-to-date?
whatever do you do with it?
no, there is absolutely no obligation to know the value of your property although it is sometimes interesting to do so

nearlynew

Mrs_pbradley936 wrote: »

Many thanks but how often are you supposed to update your calculations? Every year? When you want to sell? Is there a legal obligation to keep this information available to anyone?

Whenever you want.

There is no obligation to supply this information to anyone.

If you've had the place for a while, got good cashflow and plan on keeping it, it is a bit pointless measuring the yield anyway.

Riccal

nearlynew wrote: »

% Yield is calculated by dividng the annual rent by the current value and multiplying by 100

In your case £7800/130000 x 100 = 6%


As prices fall, the yield goes up

Not so sure about that. The relevancy of annual yield expressed as a percentage is to determine how well your money is working for you.
Therefore, your figures need to be based upon your outlay.
Some investors may then offset bank deposit rates to see the spread over cash on deposit and to determine they are receiving better than 'cost' of their funds.

The 'reval' price or rent versus current valuation would only be relevant to a new buyer.

Riccal

poppysarah

What are you calculating it for?

For sanitys sake calculate it on what it cost you - (And are you deducting repairs/voids/mortgage costs if you're taking into account real costs?)

(yearly rent - yearly costs)/original cost *100

There is no point creating an imaginary yield by using todays value unless you are selling it...

getmore4less

The current value yields give you a sell/buy indicator for the rental side of the business

Gross yield should be based on the net cash value if sold so after expences.

This gives a rough comparitor against other investements

Problem is that if you are borrowing money there are few other choices to actualy compare against.

But it does give you a reasonable indicator of how under/over value the asset is, a good long term return rate is around 10% allthough with the low costs of money many currently operate on lower returns

Net yields are interesting because they tell you if you are making any money, in price bubbles as the yields drop it can be a good time to offload an expensive to run property and look for better yielding property. Allthough costs are high for churning this asset class, realising some capital gains along the way can help.


If geared through borrowing the returns can be very different depending on the cost of the money.


Sticking with the yield on cost gives a false picture of how the asset is working relative to other asset classes.

But the yields are only part of the picture capital gains will contribute to the total returns when the assets are liquidated.

theartfullodger

Mrs_pbradley936 wrote: »

Can somebody tell me how often you should re-calculate the rental yield?

'corse, the answer is different when reporting figures, correctly & above board, to HMRC.....

ninky_2

[QUOTE=nearlynew;36756355
As prices fall, the yield goes up[/QUOTE]

unless rents fall also.