Considering investing in real estate? one of the first questions you will want to ask is, what return I will get from this property or, in other words, what is its Yield?
Yield is the way of measuring the future income of your investment. It is particularly important if the capital growth rates is not usually high. So, the return you get now and in the future is a key factor in working out whether to invest.
Yield is calculated as a percentage, based on the purchase price, yearly income and running costs. It does not consider how much the price has increases over time (capital growth or capital gain).
When calculating yield, it’s important to know if you are calculating “property gross yield” or “Property net yield”.
This is the income of your investment before any expenses, outgoings or possible rental vacancies are considered. Gross yield also does not take loan interest rates into account.
Gross rental yield is commonly used when looking at returns, as it is simple to calculate and lets you easily compare properties with different values and rental returns.
This is the income of your investment after any expenses or other outgoings, such as maintenance and insurance, are taken out. Net yield is sometimes referred to as rate of return.
Calculations of the Gross Yield are worked out by dividing the yearly rental income by how much property purchase price and multiply by 100.
For example: Gross yield = income Yearly rental / property purchase price x 100.
So if you buy a condo for 8,500,000THB and rent it out for 45,000THB per month (540,000THB yearly) your yield, will be 6.35%. This is an example of gross yield, where all the expenses have not been taken into account.
Purchase price 8,500,000THB and expected yearly rental income 540,000THB.
540,000 THB - yearly rental income
÷ 8,500,000 THB - property purchase price
Gross Yield = 6.35%
To calculate, take the yearly rental income and minus the yearly expenses from this. Then divide this number by the property purchase price and multiply this number by 100.
Purchase price 8,500,000THB and expected yearly rental income 540,000 THB. And total yearly expenses 30000THB.
540,000THB - yearly rental income
- 30,000THB - total yearly expenses
÷ 8,500,000THB - property purchase price
Net Yield = 6.00%