Understanding Your Rental Yield

Whether you're a savvy investor or thinking about purchasing a second home, understanding your rental yield is a non-negotiable if you want to see a return. 

Once you’ve managed to successfully purchase your first home, there usually comes a point where most of us start looking at other avenues to generate more income outside of our primary place of employment. Suddenly, property becomes less of an obligation and day to day necessity, and often starts to become an appealing option for increasing the bottom line of your bank account. 

However, investing in property isn’t for everyone, and often boils down to your own individual circumstances. As it generally involves large sums of money, it’s important to do your research if you’re considering this avenue as a way to build wealth. If you’re already sold on the idea or are well on your way to owning multiple homes, then rental yield is the term we use to describe how much money you’re making when compared to the amount you’ve invested. 

The Concept Of Rental Yield Explained

When you’re buying and selling property as a means to turn a profit, knowledge is power. Many landlords and property investors make the mistake of making major financial decisions on guesswork, such as selling their home at what they think is the right time and price, or handing it off to a property manager with the hope that the rent generated will take care of the expenses. 

For real estate, rental yield is shown as a percentage figure. It’s calculated by taking the annual rental income, and dividing it by the property’s price and costs. Home owners should then multiply this number by 100, and the result is your rental yield percentage.

When applying rental yield, it’s actually the gross amount that is usually calculated, and may not be a true reflection of the final incomings and outgoings from the property in question. One such example is that if the weekly rent received for a property is $400, and the property value is $450,000, then the gross yield is $400 x 52 weeks divided by 450,000 x 100 = 4.6%. 

However, this figure doesn’t include all of the many expenses that home ownership requires, such as insurance, maintenance and repairs, property management fees and council rates. When these are factored into the calculation, this is a truer figure known as net rental yield. 

According to Russell Child of Yield Asset Management, too many property investors make the mistake of forgetting that their property portfolio should be treated as assets as opposed to dwellings - which is something that his Brisbane based service is aiming to change. 

“Even on a personal level, I found that the relationships I had with real estate agents managing my own investment properties felt somewhat transactional. I come from a background in mortgage broking, and found that there was a real lack of service for investors looking for a combination of property management and investment advice specifically focussing on real estate. Rental yield asset management is a really niche service that we offer, and we wanted to help landlords and property investors to make educated decisions that factored in all of the costs involved with having an investment property.” 

Once property investors have a firm grasp on understanding their true rental yield, it then puts them in a position to make educated financial decisions for the future. For some, it may actually work out that selling the property puts them in a better overall position, while for others, a little bit of research may indicate areas where they can potentially boost their rental yield or even if their amount of weekly rent is underpriced or overpriced when compared to market trends. Either way, having a good grasp on your rental yield is a win-win in quite literally all scenarios. 

Navigating Tax Obligations With The Professionals 

Whether you’re looking to become a property tycoon, start a business, purchase an existing one, or even re-evaluate where your current enterprise stands, these all require some form of financial know-how if you hope to successfully navigate your legal tax requirements as well as hit your financial and business goals. 

However, if understanding the legalities that surround your business or finances isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many individuals and businesses enlist the services of an accountant in order to free up their time, while knowing that their financial obligations are already taken care of by the professionals. 

Ultimately, the team at Muro believe that every business owner is an entrepreneur. However, accounting does not discriminate - finances break down barriers and are not territorial. If you would like to take a deeper look into your finances, please get in touch with us at Muro today to ensure that you’re on the right path for success.