There’s no doubt that yield is the golden word for investors. Other things may come into play, such as lifestyle or infrastructure potential, such as the Bega Hospital and Eden Wharf developments, but the income return on the property is usually the major concern for the purchaser. The Sydney market has been hot for investment properties to the extent that Investors are crowding each other out, resulting in a slight drop in yields. That gives regional towns on the South Coast and Monaro such as Bega, Merimbula, Tura Beach, Eden and Cooma the inside track for investors looking for positive returns.
Yield is generally calculated annually as a percentage. It is based on the asset price or market value of a property. The gross yield is the income (i.e. rent) derived from the investment before expenses are taken out. The net yield is the income less expenses. These expenses could include stamp duty, legal fees, pest and building inspections, repairs and maintenance, property management fees, insurance, rates, strata management fees.
The yield is stated as a percentage and is worked out as –
Gross yield = annual rental income / property value x 100
Net yield = annual rental income – annual expenses / property value x 100
The return or total return includes capital gains. It is quoted as a percentage and is retrospective, based on the gain or loss of the investment during a particular period.
Increasing housing demand drives property prices up and this can affect the yield of an investment. The more prices go up, the lower the percentage between rents (income) to property value. According to Australian Property Monitor’s figures for the September quarter, this is exactly what is happening in Sydney right now. With the current low interest rates many investors are considering purchasing property for negative gearing. Purchasers should ask the right questions of Real Estate Agents to ensure they know the likely net yield on a property before they purchase.