The Importance of Rental Yield

Rental yield is a percentage figure from dividing your yearly yield by the value of the property.

For example, let’s say you’re picking up $15,000 per year in rent from a $300,000 property.

15,000 / 300,000 = 0.05

That’s 5% , which is actually an excellent yield. Most capital cities range from 2.8 – 4.5%pa yield.

But then you have to look at interest rates. Over the last 10 years, the average interest rate for a loan in Australia has been 7.3%.

Now, imagine you have that 5% yield. That means you’re going to have to find another 2.3% out of your own pocket to pay the interest.

Suddenly, this starts to sound difficult…

And that’s not all… 

You also have to cover the ongoing costs of running the property. Between insurance, maintenance, and property management fees, you’re paying out a lot of money each year.

You’re going to have to dedicate between 20% and 30% of your rental income to those fees. Otherwise, you’re paying them out of your own pocket again.

These are all things that you’ve got to look out for when you #Source It. PS Currently interest rates are less than 4%pa and although rates aren’t assumed to rise for years it is a good tactic to take into account the higher rate when doing your calculations so you can plan for future years.

PS: We can help you to do more…

1. Join our Facebook community to learn more and connect with other first home buyers and the professionals who assist them.

2. Contact us today to find out what you need to do to get yourself in a position to borrow.

3. Check out our Location Masterclass that will teach you to use an investors mindset to choose the location of your first home.