All decisions should be based on yield valuation, so it is important to get the basics right from the start. With this in mind, here is the formula you would use to work out the yield of a property, excluding legal or one-off costs.
Gross Yield = Annual Rent / Property Value x 100
EXAMPLE 1:
A property costs £465,000 and the annual rent is £78,000.
Gross Yield = 78,000 / 465,000 x 100
= 16.7% YIELD
EXAMPLE 2:
A property costs £235,000 and the annual rent is £19,400.
Gross Yield = 19,400 / 235,000 x 100
= 8.2% YIELD
EXERCISE
Based on this formula, answer the following questions.
1. If a building was purchased for £277,000 and the annual rent is £37,000, what is the gross yield of the building?
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2. If a building was purchased for £300,000 and the annual rent is £30,000, what is the gross yield of the building?
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HMO is a mixture of Cost Per Room and Yield, but Cost Per Room is not an exact science and varies considerably based on location.
