You may hear the term “high yield” thrown around a lot.
Go to a get-together and you may hear people talking about their property yields...
But what does it really mean?
And how important is it?
For those that don’t know, High yield is one of the key principles in the Holy Trinity of Real Estate Investment.
But how much do you really know about yields?
Take a look below.
Property Yield and Why It's Important
When you hear the term “yield” relating to a property, it typically relates to your cash flow, as in rental yield.
Much like your paycheque, the gross yield is a percentage of everything you earned for a period of time versus your investment.
For property, it’s the annual return over the purchase price.
For example, suppose you buy a property for $500,000.
If you rent it out for $650 per week, multiply that number by 52 weeks.
Next, divide that by the purchase price or $500,000.
This is your gross rental yield.
To express it in percentage, just multiple by 100.
But this doesn’t account for expenses.
So, it’s not a real representation of your cashflow.
Instead, you need to look at the net yield – or the amount you have left after all your expenses.
Generally, your mortgage payments are the largest expenses to account for.
But it can also include payments like:
- Property management
- Repairs and maintenance
- Council rates and services
So, what does this mean for you?
You want properties with a minimum gross yield of 5%.
This is when you can start to produce positive cash flow (depending on your finance piece)
Ideally, though, you want your properties to be at 5.7% or higher in the first year.
This equals more serviceable income at your disposal...
...And it means you’re able to borrow more money for subsequent investments.
Keep in mind that this is also where your replacement income comes from if you want to quit your day job...
...And everyone wants that, right?
Essentially, high yield property investments decrease your risk by being self-supporting.
It can increase your borrowing capacity and provide passive income.
Want to you buy your own High Yield Property?
And remember, stay awesome, and keep dreaming bigger.