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Capital gain

Capital gain is the profit investors make when they sell an investment for more than they paid for it. Just be mindful the strategy to make a long term profit – as prices rise over time may be coupled with little or no profit in the short term, as expenses, such as mortgage repayments and insurance, also need to be taken into consideration.

Rental yield

Yield comes from the rental money received from tenants. It’s the rent a property can provide over a year, expressed as a percentage of its purchase price.

Net yield

This is the income return on an investment property after any expenses or other outgoings, such as maintenance and insurance, are taken out. Net yield is sometimes referred to as ‘rate of return’.

Top tip

Although the gross rental yield is a simple calculation, it’s important to remember that it doesn’t take other factors, such as expenses, interest rates or periods of vacancy, into account.

For example, a property may have a high rental yield but may also have high maintenance costs, which may make the rental return low when taken into consideration.

High yield for cheaper areas

This is the income return on an investment property after any expenses or other outgoings, such as maintenance and insurance, are taken out. Net yield is sometimes referred to as ‘rate of return’.

Calculating gross rental yield

To calculate, take the yearly rental income (weekly rent x 52 weeks)’ and divide by the property value. Then multiply this number by 100.

Example:

Property value $900,000 and expected rent $650 a week.
$33,800 ($650 x 52 weeks – yearly rental income ÷ $900,000 (property value) x 100. Yield = 3.76%

Calculating net rental yield

To calculate, take the annual rental income and minus the annual expenses or loss of rental income from this. Then divide this number by the property value and multiply this number by 100.

Example:

Property value $900,000, expected rent $650 a week and expenses/loss $6000. $33,800 ($650 x 52 weeks – annual rental income) – $6000 (annual expenses/loss) ÷ $900,000 (property value) x 100. Yield = 3.09%

Expenses or loss of rental income can include: buying and transaction costs (property purchase price, legal fees and building inspections, any start-up loan fees); annual costs such as vacancy costs (loss of rent and advertising); repairs and maintenance; property management fees; insurance; rates.