Yield vs ROI
If you’re thinking about yield vs ROI, you might be confused as to what each of them means. It’s possible that you’ve attended property networking events and heard people talking about yield. Don’t get drawn into or daunted by the jargon. Many naive investors get caught up in the idea of sounding professional and knowledgeable without really knowing what they’re talking about. You can’t blag it when you’re talking to a proper businessperson. It’s time to get schooled up and attend our Crash Course if that sounds like you.
What is Yield?
Yield is the value of the property divided by the annual rent it provides. For example: if the value of the house is £100,000 and you rent it for £10,000 per year, the yield would be 10%. This sounds like a sophisticated figure to throw around and think about. However, it doesn’t take into consideration management fees, void periods, maintenance costs, repairs, bills. In other words, it doesn’t tell you about all the costs involved with owning a property.
Just focus on ROI
ROI stands for return on investment. ROI is the annual profit generated from a property divided by the total amount you would need to invest. This takes into account all of the costs involved with investing in the property, so it gives you a better picture of the deal. It’s better to focus on ROI as opposed to yield because it neatly sums up the ratio between how much you’re putting in versus how much you’re getting out of it. It’s important to keep things simple to understand and to analyse.
If you’ve got any questions about ROI or Yield, you should consider coming to our Crash Course – it’s free! It’s a great way to get your understanding of property up so that you don’t have to blag your way through conversations and meetings. We want you to be confident and composed so that you can build a real business.