• Rental yield measures the ongoing return on your investment property
• It lets you compare your investment property to other investments
• Rental yield doesn’t include capital growth
As an investor, rental yield helps you assess the potential income and cash flow of an investment property.
According to CoreLogic, the highest-yielding metropolitan suburbs last year ranged between 5-7% for houses and 5-8% for units, typically in outer suburbs where properties generally cost less to buy.
Consider looking at rental yield to determine the market value of an investment property, as opposed to 'fair value' assessments made by comparing them with similar properties.
If its gross rental yield potential is likely to be below, say, 4%, there's a chance it might be overvalued for investment purposes.
Conversely, if the gross yield is over 5.5% – and the rent is sustainable over the longer term – the investment property may be undervalued.
So while it’s important to take into account the rental yield, it should be used as an indicator only, together with other key factors such as location, aspect and potential capital gain, in assessing the overall return and value of an investment property.
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Jason Gwerder
Monday, 11 February 2019
