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Calculating yield

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  • Calculating yield

    Hi all,

    I have seen more than one different way to calculate a rental yield. I have some questions regarding the calculations.

    Yield calc 1.

    ((Monthly rental income * 12) / Purchase Price) x 100

    My question is around the purchase price...

    Say that I buy a property for 100,000 but its BMV asking price is 114,000, I do it up and it is now worth 150,000, at which point, I remortgage at 75% LTV with a mortgage of 112500, then what should I insert into Purchase Price.

    (Say the rental income is £750 per month)

    Yield calc 2.

    ((Yearly rent - outgoings (agency fees, property maintenance etc.)) x 100) / Purchase Price

    The formula is almost the same, but the same question applies... what should I put in the Purchase Price?

    Thanks for your help. It will help me to make a decision on wether to buy a specific property.
    Community spirited? http://www.AshfieldFOCUS.com

  • #2
    The purchase price should always be the value as this is the only way you can work out the yield, therefore if the value falsl the yield gets greater, or if it goes up up the yield gets lower.

    The difficulty you ahve is in trying to post a value to a house at the moment - the questions is how do any of us know what any hosue is actually worth?
    Worldwide Financial Planning is a specialist independent provider of Large mortgages.