Yield in property investment usually refers to the purchase price divided by the annual rent. For example:
- You are looking at a $370,000 property.
- It has a weekly rent of $320, which equates to an annual rental income of $16,640.
- Calculated as a percentage, this equates to a rental yield of 4.5%.
This tells you, in simplified terms, what percentage of your initial investment will be returned to you each year. Investors use yield to compare properties when making investment decisions.
Yield varies from property to property. Often, properties in low-price areas can return greater yields (a high rent to initial price ratio), but with high risk of defaulting tenants and low capital gains. “Blue chip” properties often command high rent, but lower yields as rent as a percentage of purchase price may not be so high.
We recommend looking for properties with a minimum yield of 4.5% (that magic number from the example, above!). We explain why where we discuss our Property Criteria.