Yield Calculations
“Our main driver for investing is cash flow, which is even more relevant as most of the properties in our portfolio are in areas that have not seen much in the way of capital growth. Therefore we tend to focus on the rental yield on money left in the deal, and on current equity, as the main indicator of how our investments are doing.
There are different ways to calculate yield and their relevance and YOU will depend upon a variety of factors including whether you are mortgaged, your plans to pay odd mortgage debt, what you believe will happen to interest rates in the future and your short, medium and long term plans.
As an investor who seeks to “recycle” our deposits we tend to assess the performance of an “asset” according to cash-on-cash return in addition consider my yield as a percentage of mortgage debt.
Why would you do this? Well, the value of your property may go up or down and can actually often be difficult to ascertain.
In truth, it’s worth what somebody will pay for it on a given day. But my mortgage debt is NOT fluctuating, it’s pretty much fixed and will only increase or decrease if I borrow more money/pay off some of the capital sum.
If I have £100,000 of mortgage debt at 5% then my mortgage is £416 monthly. If my rental income is £850 pcm then this is a 10.2% yield on debt. Broadly speaking without allowing for costs, my property will still break even where my interest rate rises to 10%.
If we take off running cost per property of £1,200 per year then my NET rental income becomes 9%.”
Source: Your Property Network
Issue 78. December 2014
There are different ways to calculate yield and their relevance and YOU will depend upon a variety of factors including whether you are mortgaged, your plans to pay odd mortgage debt, what you believe will happen to interest rates in the future and your short, medium and long term plans.
As an investor who seeks to “recycle” our deposits we tend to assess the performance of an “asset” according to cash-on-cash return in addition consider my yield as a percentage of mortgage debt.
Why would you do this? Well, the value of your property may go up or down and can actually often be difficult to ascertain.
In truth, it’s worth what somebody will pay for it on a given day. But my mortgage debt is NOT fluctuating, it’s pretty much fixed and will only increase or decrease if I borrow more money/pay off some of the capital sum.
If I have £100,000 of mortgage debt at 5% then my mortgage is £416 monthly. If my rental income is £850 pcm then this is a 10.2% yield on debt. Broadly speaking without allowing for costs, my property will still break even where my interest rate rises to 10%.
If we take off running cost per property of £1,200 per year then my NET rental income becomes 9%.”
Source: Your Property Network
Issue 78. December 2014
N.I's 26 councils final Rates Bills
Source: Newsletter
