Yield – What it is and how it is calculated?

I get asked a lot about yield. People are generally confused with yield and return and how to calculate each from an investment property perspective. So, I thought I would write a brief article to iron this out.

Yield refers to cash inflows for the entire year from the investment and is generally expressed as a percentage of the property valuation. The equation to calculate yield is below:

YIELD % = CASH INFLOWS FROM THE PROPERTY / PROPERTY VALUE X 100

That number is then expressed as a percentage.

The cash inflows can come from a few different sources. The most obvious one is rent, but you can also be selling electricity to tenants, or they may be paying for water etc. All these cash inflows need to be taken into account to calculate yield.

Next, if you are calculating current yield as opposed to something else, you then need to work out the current value of your investment property. This can be estimated, or you can have an agent give you a valuation or even go so far as getting a paid valuer to give you that information.

Then we divide the Cash Inflow by the Current Valuation and that should give you a number. Then to change that number to percentage, multiply that number by 100 and take that as being your yield %.

STEP 1

Calculate the total cash inflows for the year.

STEP 2

Calculate the current value of your investment property.

STEP 3

Divide the total cash inflow for the year by the current value of your investment property.

STEP 4

Multiply that number by 100 and that will give you your yield %

Due to the rapid increase in interest rates over the last 18 months, people have been searching for ways to make their investment properties higher cash flow. On our next newsletter, I will cover some of the smart and tricky ways people are increasing the yield on their property investments.