Yields is a way to measure profitability of an investment over a period of time, often annually. To put it another way, the yield is the income the investment returns over time, typically expressed as a percentage.
The yield is forward thinking and measures the income that an investment earns. In calculating a yield, one has to make an assumption that the income will continue to be received at the same rate.
In a property context, rental yield is the potential return on a property investment through rent. It’s a percentage figure that’s calculated by taking the annual rental income of a property dividing it by the price paid and then multiplying this by 100. Landlords and investors use rental yields to monitor the value of their investment property portfolios. It is often used as a benchmark figure when comparing other investment properties.
While rental yields can vary from postcode to postcode, they say that a good rental yield is:
- between 5% and 7% for buy to let residential market; and
- between 6% and 8% per annum in the commercial property market.
Please note however that the yield calculation is based on the returns and investment without taking into account any operational costs on the property (i.e. it doesn’t include the cost associated with purchasing the property, taxing the property and active management of the property either). There are ways in which one can boost a yield on commercial property, these include:
- Increasing the rents paid by tenants.
- Reducing the amount spent on operational costs.
- Improving the state of your property through renovation, reconstruction, and routine maintenance.
