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  • Property Yields

    Net yield calculation help

    hello. I’m trying to work out which properties to keep, remortgage or sell.

    When people cslculate theur net yield how do how do they do that?

    I assumed that to calculate what yield I’m actually taking home (net) I would do something like outgoings (mortgage, expenses, tax) divided by income (rents) to find my net yield

    would that be right? I’m trying to get a true picture of my portfolio to help me to make the decisions  

    Based on the above, what % would people decide to keep or dump at?

    thank you

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    The purists would say net rental income divided by original acquisition cost.

    CG is a major factor in South and vice versa in Midlands/North.

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    Net yield is what exactly is coming in, minus what is actually going out, divided by your equity in the property.

    Gross yield is annual gross rent divided by property price and its more for mortgage purposes (stress test etc...) and pretty unhelpful way for deciding which property is performing well or not.


    Hope that helps.

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    Hi Sharronpeck,

    I don't think that's quite right - the formula for net yield is:

    (Total annual rent - total annual outgoings) / Property valuation

    And then multiply by 100 to express as a percentage.

    What is a good net yield depends in part on which part of the country you property is located in.

    The other way to think about it is what is the alternative - how would you invest the cash if you sold a property? I would suggest you shouldn't sell a property unless you have an opportunity (at equal risk) with a great net yield.

    Hope that helps a bit!

    Michael

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    Michael Dent
    Landlord and Founder of PropertyData.co.uk
    Believer in a data-driven approach to property investing

    Hello

    ANNUAL PROFIT (INCOME - EXPENDITURE) / PURCHASE PRICE *100 = NET YIELD%

    Don't forget ROI & Cashflow.

    Also, depending on location. You may have a poor yield but a very good asset appreciation. (Capital Growth)

    I personally would make a decision to sell or keep purely on one factor. Plus it should working for any future strategy.

    Hope this helps, hopefully you will get other posts as you will find people can calculate using differing formulas


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    Apologies  - ANNUAL PROFIT (INCOME - EXPENDITURE) / PROPERTY VALUE *100 = NET YIELD%

    (Cheers Michael.....)

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    Hi Sharron

    Sometimes cashflow (or ROTI return on investment) is a better measure to judge properties

    net rental income (after maintenance, voids, management costs etc) /(all the money you have in the property) x100

    This allows you to see the return on your invested money in the property.

    Marcus

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    This is the definition of ROI I would use or as used to be called ROCE (return on capital employed). Surely as investors we're interested in what return the cash we have invested is yielding. Obviously then on top of yield you need to consider CG if yields are equal but CG is better on one property then all other things being equal that would be the property to keep.

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    There are a number of factors to consider in assessing what to keep, remortgage and what to sell. I think you are trying to use a theoretical approach which is fine for similar properties but not correct in practice.

    You need to strip out the factors which are not dependent on the property.

    For example if you have chosen to borrow at 40% LTV on one and 75% LTV on another when both properties would be able to secure the same mortgage product then the gearing differential (ie difference in LTV's) will affect your ROI/cashflow/yield calculations.

    You also need to consider what is happening in the area and whether there is any development gain to be had. I think it is key that you know your own objectives. If you will never redevelop it then there is no redevelopment value for you (other than selling to a developer).

    Your tax position may also affect your objectives but tax is likely to be dependent on the size and leverage of the portfolio not the individual properties themselves.

    Lastly what do you plan to do with the equity you release. If it is buying another property or investing in another asset class (even bitcoins!) then you need to weigh up opportunity cost as well.

    Its a very hard question to expect an answer from a forum. People can do the maths but only you know how you weigh up the various factors. Best of luck.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hello Sharron,

    I feel that Michael Peck has answered your question very well, so I won't address that but I wanted to make you think ...

    Why are you trimming down your property portfolio?  It is not always best to sell the lowest yielding properties.

    If you need a wedge of cash but still need to maximise the income from your properties then it may be best to sell low yielding properties.

    If you selling some because your property portfolio is too big and too much day-to-day work or hassle or you just "you can't be asked to deal with all", then selling then properties that take up most of you time would be a solution.

    Sit down with a trusted friend who is financially/business minded (not necessarily a fellow property investor), talk about WHY you want to sell up and how you can achieve it, work out all the different scenarios of which properties to sell/keep and the income they generate to keep in a glass of wine each evening.

    I hope that helps and make you think and that you can come to correct decision for you particular position.

    Fred.

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