Rental Demand and Yield
Are you looking to invest in property?
Taking the time to research areas with strong rental demand and yield is an important part of assessing the financial viability of an investment property.
Rental yield is a calculation of how profitable a property can be, based on the expected rental income, balanced against the costs of owning and maintaining the property. These include mortgage repayments, strata fees, council fees, maintenance, and insurance, to name a few.
Rental yield can be calculated in gross and net terms. Gross rental yield is the total value of the property divided by the expected annual rent, multiplied by 100 to get a percentage.
For example, an investment property worth $500,000 with an expected rental income of $500 per week gives you the gross rental yield of:
$26,000 ($500 x 52) / $500,000 = 0.052 x 100 = 5.2%
Net rental yield is slightly more complex, as it factors in all your costs and fees, such as council rates, strata levies, property management fees, depreciation, and insurance.
Using the same example above, assume the total annual costs to maintain the property are:
$1200 council ($300 per quarter * 4), $2000 strata ($500 per quarter * 4) $520 property rental fee, $1200 property insurance, (total of $4,920) The net rental yield of the property would be:
$26,000 ($500 x52) – $4,920 / $500,000 = 0.042 x 100 = 4.2%
It is also important to understand what you are trying to achieve as an investor. Some invest with a long-term view of security and wealth creation, while others are looking for a short turnaround and quick profit.
At Cumberland Realty we provide expert property management and services.
Francesca Luccitti
Principal
0430 393 396
[email protected]
www.cumberlandrg.com.au
Shop 8, Greystanes Shopping Centre Greystanes NSW 2145
181 Dunmore St Wentworthville NSW 2145