Return On Investment (ROI) or Yield... Finance Analysis on Your Next Property Investment

Return On Investment (ROI) or Yield… Finance Analysis on Your Next Property Investment



if you walk into pretty much any estate agency across the country make it clear that your property investor and ask to see their finest investment property deals I can pretty much guarantee you they'll put some properties in front of you and start to quote you a percentage return that they feel that that property will actually give you this is called yield let me tell you what it is and why it's completely the wrong set of numbers for you to be focusing on hi there my name's Tony Thor from your first four houses and my channel is all about helping you get to investment property number four as quickly and as painlessly as possible so as I say you're in your local estate agent they've started the put some properties in front of you they're thinking were your property investor you're going to want to know what the yield is so let's start things off by looking at that actual equation so yield is the annual rent usually based on just a single family unit renting the property divided by the purchase price multiplied by one hundred and it's two that the yield that the estate agent is actually going to be quoting you so let's just pause for a minute and have a quick look at this equation the annual rent generally speaking it's going to be based on a single family unit renting the property and in truth there's not a huge amount that you can do so actually vary that amount of income that's coming in there are a few things that you could do but not a huge amount of vary that that particular number let's look below the line at the purchase price well the purchase price is the purchase price that's what you're buying it for again there's not really anything that you can do to actually change that consequently if you get four terraced houses for example in a row let's imagine we've got three bedroom houses to reception rooms if you look at the yield that you're gonna get on those they're all generally gonna be about the same in the example I've given you here they're say 5% now property investors people are actually doing this professionally use a whole different set of calculations they use return on investment now let's look at what that equation looks like so we got to take the annual profit we're gonna divide that by the cash that we've invested in the deal we multiply that by 100 and again that gives us our return on investment so again let's just pause for a minute and let's just have a little look above and below the line so let's start off with the annual profit well what does that look like what is it made up off it's made up of the annual rent that's actually coming in take away the annual costs that are going out so the annual rent that's coming in is there actually anything specific that we can do so actually vary that well the answer is absolutely yes there is you might choose the multi let the property you might use the la chase strategy you might split the property up in some way to increase and boost the income you might change it from commercial to residential or vice versa there's a whole bunch of different things that you could do to change the level of income that's coming in the costs going out is there anything that we can do to change that absolutely yes there is you might have a mortgage with a sizeable deposit meaning that your annual month sorry your monthly costs going out mortgage wise are less you might have a very small deposit with a larger mortgage going out you might have a number of different bills that you're gonna factor into this frankly the costs going out can vary enormous ly depending on what you're actually doing with the property so let's look below the line now let's look at the cash that we're investing invested in the deal so that's actually going to include the initial cash that you're gonna invest plus any refurbishment costs that you're going to actually put into the property so the initial cash that you're going to invest in this particular property can that vary absolutely it can you might decide to put 100% of your own funds into buying this particular property you might actually use an investor's money so actually to fund this particular project and in theory have none of your own money in the actual deal now obviously that's going to change a number of other parts of the equation but it's a fact that can vary dramatically or what we see somewhere in between you might have a high mortgage of low mortgage so that is absolutely going to change your refurbishment costs can they change of course they can depending on what you were actually going to do with the property they can vary wildly especially if you're going to change the class use for example so all four parts to this can dramatically change depending on what you're actually doing with the place so if we take those same four properties it's absolutely the case that you can get a 5% return you could get a 50% return on the house next door you might get zero on the one after that or if you've got none of your own funds in the property deal at all is absolutely possible that you could get an infinite return on your money and if I look at some of the properties that I've got in the right-hand column and the return on investment it absolutely says infinite as a return on my investment so please please please the next time you're looking at a number of different projects and you're trying to decide which one to go for please ignore yield if you can take the extra effort that it's actually going to take to calculate a genuine return on new investment and then please base your decisions or at least make one of the components to your decision the return on the investment I really hope that you found that helpful I really do this maternally investment calculation is something that is so dear to my heart and I genuinely think that a lot of property investors don't use this when they just want to decide what to buy if you found that helpful I would love it if you could take a moment to subscribe to my youtube channel if Facebook is more your thing please take a moment to like my Facebook page and this way I can keep you up to date well then the next property related video is available to you because all I want to do is to help you on your property investing journey my name is tony law from your first four houses i really hope that you found this one helpful look for the ceiling thank you

About the Author

23 thoughts on “Return On Investment (ROI) or Yield… Finance Analysis on Your Next Property Investment

Leave a Reply

Your email address will not be published. Required fields are marked *