Gross Yield & Net Yield

Yield is something that every investor cares about when purchasing a real estate.
There are two types of investment yields. Gross Yield and Net Yield.
The yield you see on property outline or property information on the internet is almost always a gross yield.

Gross yield is calculated as
Projected full occupancy annual rent / Purchase Price

Net yield is calculated as
(Projected full occupancy annual rent – Annual running costs) / (Purchase Price + Closing Costs)

The higher the gross yield the better but don’t think that’s always the best.
Even if the gross yield is high, it means nothing unless vacant rooms are filled.
Even if the gross yield is high, it means nothing if its running costs are very high.
Purchase price usually doesn’t include fees such as brokerage fees, closing costs, taxes, and registration fees.
Pay attention to net yield as well.

Summary

Do NOT just rely on gross yield.
Pay attention to net yield as well as cash flow.


Gross Yield & Net Yield
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