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  • Property Yields

    Yield vs Return

    Hi all,

    I am fairly new to property investing and have been a PIN Academy member for a while now. One thing that often comes up is when people talk about Yields and Return on investment and I would love to understand which you use and why?

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    Property Investor | Property Sourcer | Systems Expert for Property Professionals
    T: 0121 405 0390 | http://www.pandaboxproperties.co.uk | ashley@pandaboxproperties.co.uk

    I always use ROI when looking at new investments, as it will be closest to what I actually "see" happen.

    ROI does tend to break down for older investments though, assuming you extract further funds over time and end up with less (or no) money left as the "investment" part.  Things like return on equity might then be a alternative measure.

    I only tend to use yield as a rough headline guide.  There are far too many things that can detach it from on-the-ground reality.

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    Thanks Simon...

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    Property Investor | Property Sourcer | Systems Expert for Property Professionals
    T: 0121 405 0390 | http://www.pandaboxproperties.co.uk | ashley@pandaboxproperties.co.uk

    I only buy on yield it pays your bills it pays a living and it funds deposits for future investment

    today i use 8% so its simple if a property is purchased for 100k I want a yield of 8k

    I never look at the value of the property after I have purchased  because I know it will go up in value over the long term so why worry about it or plan on it

    Today is more important Yield gives me options



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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    There are lots of parameters one can use. Often the one that best "fits" is used, often depending on who is reading the report! Yield can also be broken down into differing ways. Your basic approach is going to be the yearly return on capital employed or, the rent your are getting (you've got net or gross here as another option) as a percentage of the cost of purchase. You can go one set further by looking at the yield in terms of rent vs the market value of the asset, especially if the asset has appreciated in value. That's worth considering if there's an offer to buy your asset, so you can weigh up if the money gained from the sale can be put to work earning a greater return elsewhere.

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    We use Return on Cash Invested.

    "Cash Invested" equals “cash out” minus “cash in”:

    - ALL costs (including purchase price, SDLT, solicitors fees, surveyor / valuer fees, mortgage arrangement fees (unless added to mortgage), broker fees, telegraphic transfer fees, auction / agent/ sourcing fees, any refurb costs, etc) MINUS

    - mortgage amount

    Return equals annual profit after deducting ALL expenses (mortgage interest, voids, repairs, maintenance, insurance, letting agent fees, gas safety certificates, and – for leaseholds – ground rent and service charges).

    i.e. true cash on cash return.


    Yield (gross or net) is only useful as a shortcut to weed out bad deals or new areas, but my spreadsheets are pretty well populated now so I barely look at yield at all.

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    Hi Rassie,

    Thats a helpful way to re-define ROI, do you do it this way for all strategies?

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    Property Investor | Property Sourcer | Systems Expert for Property Professionals
    T: 0121 405 0390 | http://www.pandaboxproperties.co.uk | ashley@pandaboxproperties.co.uk

    Yes.  I have different spreadsheets/calculators for different scenarios, e.g. HMO, student HMO, social housing HMO, R2R, SA/holiday lets, BTL with mortgage vs BTL without mortgage, commercial, etc.

    They are broadly variations on the same theme, but e.g. for commercial my interest rate assumptions are higher, and because of loans generally being repayment rather than interest-only, I separate "profit" from cash flow (because some profit will pay down the mortgage - so it's not cash in my pocket every month/quarter - but it's still profit!).

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    Hi,

    I have a blog on this on my website - The fundamentals of property investment - Part 1 - https://www.realm47.com/fundamentals-of-...nt-part-1/

    Hopefully it explains in detail where and when to use each calculation.

    Best wishes, 

    Sara Newson

    REALM 47 Ltd


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    Thanks, Sara, that's really useful, I will go and take a look later...

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    Property Investor | Property Sourcer | Systems Expert for Property Professionals
    T: 0121 405 0390 | http://www.pandaboxproperties.co.uk | ashley@pandaboxproperties.co.uk