RENTAL, CAPITAL AND TOTAL YIELDS
The gross yield for any investment property is 12 months rental income divided by the value of the property. Therefore a residential property that is tenanted at $300 per week with a market value of $300,000 would have a gross yield of 5.2% ($15600 rental per year divided by the $300,000 market value).
The net yield takes into account the likely cash outgoings of rates, insurance, repairs and maintenance, property managers fees and loss of rent due to an untenanted period. For example, based on the above example and say per annum rates are $1500, insurance is $300, repairs and maintenance are $300, allowing for untenated 2 weeks $600, that is total of all these costs are $2700. The net yield is 4.3% (12 months rental income less $2700 divided by market value $300,00).
Capital yield (or capital gain) is the ratio of the increase in the value of the property to the cost of the proerty.
For example , if you purchased a property for $100,000 and the value went up to $115,000 after one year the capital yield would be 15% (the increase $15,000 divided by $100,000)
Total yield is a combination of the two.
You could work out these ratios on a before or after tax basis.
Historically and generally:
|Properties purchased for lesser prices in "less attractive and less exclusive" areas have higher rental yields than properties purchased for higher prices in "more attractive and more exclusive areas". It should be remembered, however, that all rental received is taxable.|
|Properties purchased for higher prices in "more attractive and more exclusive" areas have higher capital yields and higher dollar capital gains than properties purchased for lower prices in "less attractive and less exclusive areas". It should be remembered, however, that capital gain is not assessable under current legislation.|
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