Further reading
When buying a property at an auction, the term "yield" refers to the return on investment that an investor can expect to receive from the property. It is typically expressed as a percentage and is calculated based on the property's purchase price and the potential rental income it can generate.
Here's a breakdown of how yield is calculated:
1. Purchase Price: The price at which the property was bought at the auction.
2. Rental Income: The estimated rental income that can be generated from the property. This is usually determined by considering factors such as the location, size, condition, and market demand for similar properties in the area. Rental income can fluctuate over time due to market conditions and other factors.
3. Gross Yield: This is calculated by dividing the annual rental income by the purchase price and multiplying by 100 to get a percentage. For example, if the property generates £20,000 in annual rental income and was purchased for £200,000, the gross yield would be (20,000 / 200,000) * 100 = 10%.
4. Net Yield: The net yield takes into account the expenses associated with owning the property. These expenses may include property management fees, maintenance costs, insurance, property taxes, and any other relevant costs. To calculate the net yield, subtract the total expenses from the annual rental income and divide by the purchase price, then multiply by 100. For instance, if the annual rental income is £20,000 and the total expenses amount to £5,000, the net yield would be ((20,000 - 5,000) / 200,000) * 100 = 7.5%.
It's important to note that yield calculations provide an estimate of the potential return on investment but do not account for factors like property appreciation or vacancy periods. Additionally, yields can vary depending on the location and type of property. Therefore, it's crucial to conduct thorough research, consider market conditions all which can be done by running a search, and using the tools available on our website: www.eigpropertyauctions.co.uk
View our yield calculator here.
Essential Information Group - News and Information
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