Property investment yield is based on the income generated by your investment property. Usually, property investment yield exists in the form of rental income and is expressed as a percentage of the value.
Rental income is fundamentally different from capital gains. Rental income generates immediate cash flow (to fund the mortgage), whereas capital gains may take years to realise.
Property Investment Yield Basics
Typically, rental income is used to generate capital to pay investment mortgages. It is also used to provide capital for property improvements, maintenance, as well as potentially passive income.
Managing Rental Value
The usual market formula for rental income is that rental income per year equals approximately 1% of capital value. The real question is whether or not your rental value is delivering adequate income.
A standard measure for management of rental values is pretty simple:
Calculate gross rental income, that is, the total amount of rent paid
Subtract maintenance, investment mortgage, rates, property management fees and tax
The real property investment yield is the resulting figure. This figure can be used to calculate your yield as a percentile return on your investment.
Capital Gains or Rental Yield?
There is a direct relationship between capital gains and rental yields. If your capital gain is high but your rental yield is lower, your rental price may be too low. If your rental yields are high compared to your current property value, your capital gain is increasing slowly. Apartments are typical of this, higher yields but lower capital gain over time.
For investment purposes, the relationship between capital gain and rental yield is a real-time measure of the value of your property investment. Many investors opt for a strategy of value-adding, using mortgages, loans, or similar financial products.
Improving Your Rental Yield
Loans allow you to make significant upgrades to investment properties without major capital outlay. An equity loan, for example, may deliver significant improvements in capital gain and rental yield for a relatively low cost.
Looking to Upgrade Your Investment Property Yield?
If you're looking at improving your investment property returns, either through capital gain or rental yields, talk to iLender, the leading mortgage brokers for property investment in New Zealand. We can help you with investment mortgages, equity loans, and expert guidance. Call us on 0800 LENDER to discuss your needs.