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Feb 2, 2023
How To Calculate Rental Yield For Your Investment Property
Are you considering purchasing an investment property in Nelson Bay? If so, you are likely in the middle of researching the potential rental yield of the current properties for sale in Nelson Bay. Calculating rental yield is a good place to start when you are deciding whether or not a property has the potential to be a good investment. Rental yield is a measure of the return on investment for a rental property, determined by calculating the gap between your overall costs and the income generated. It helps assess the profitability of a rental property and can be used to compare investment options. A high rental yield indicates a property is generating a significant return on investment, while a low rental yield suggests the property is not performing well as a rental investment. Residential vs commercial Residential and commercial investment properties are different types of properties that are used for different purposes. Key distinguishing features include: Tenants: Residential properties are typically leased to individuals or families for use as a primary residence, while commercial properties are leased to businesses for use as office, retail or industrial spaces Lease terms: Residential leases are often shorter, while commercial leases can be much longer Income: Residential properties normally generate rental income from one or a few tenants, while commercial properties can generate rental income from multiple tenants Operating expenses: Residential properties generally have lower operating expenses, such as utilities and property taxes, while commercial properties may have higher operating expenses, like elevators and security systems Zoning and regulations: Residential properties can be subject to different zoning and building regulations than commercial properties, which can affect the property's use, maintenance and development potential Risk: Residential properties are considered less risky than commercial properties, as commercial properties have a higher possibility of vacancy and tenants can be very specific on location, size and the condition of the space When it comes to calculating rental yield, the process is similar for both. However, what’s considered a good rental yield may be influenced by the above factors, among others. Calculating gross rental yield Gross rental yield can be calculated with the following steps, and applied to both residential and commercial properties: Determine your annual rental income (weekly rental income multiplied by 52) Divide your annual rent by the property’s value Multiply that figure by 100 Gross rental yield = (annual rental income / property value) x 100 Gross rental yield example: John purchased a property for $500,000 which he rents out for $400 per week (400 x 52) / 500,000 x 100 The gross rental yield is 4.16% Calculating net rental yield Net rental yield is slightly more complicated, but can be calculated with the following formula: Determine your annual rental income (weekly rental income multiplied by 52) Subtract the total annual expenses Divide that figure by the value of the property Multiply that figure by 100 Net rental yield = (annual rental income – annual expenses) / (property value)) x 100 Some of the expenses you might consider including are: Repairs & maintenance Council rates Property management fees Legal fees Advertising Insurance Depreciation Vacancy costs Building inspections Agency fees Net rental yield example: John purchased a property for $500,000 and now receives $25,000 each year in rent but pays $10,000 in expenses annually. (25,000 – 10,000) / 500,000 x 100 The net rental yield is 3% What is a good rental yield? The average rental yield can vary depending on factors such as location, property type and local real estate market conditions. What’s considered a good yield can also change over time as rental income and property values fluctuate. Generally, a higher percentage indicates stronger cash flow, but an overly high rental yield may come at the cost of lower or slower capital growth potential and can mean the property is undervalued. As a guide, a high rental yield would generally be considered between 8-10% while a low rental yield might be closer to 2-4%. Contact Us If you’re interested in purchasing and investment property in Nelson Bay and are after more detailed information on the average rental yields of properties in the region, don’t hesitate to reach out to our team at Nelson Bay Real Estate on 02 4981 2655 to make an appointment with one of our local real estate agents. @media only screen and (max-width: 600px) {.h2-style {font-size:23px !important;}} @media only screen and (max-width: 600px) {ul.\32 -cols {column-count:1 !important;}}
Aug 5, 2022
Commercial Property Vs Residential Property Investments
If you're considering investing in property, it can be hard to know where to start, especially when choosing between commercial property and residential property as an investment. In this blog, we will go over some of the pros and cons of investing in both of these types of Real Estate and their key features and benefits. Income Yields Because they are typically much larger and can house more tenants, the income yield is usually higher for commercial properties. This means they are more likely to be cash-flow positive. However, this does depend on many factors, including the ones we will mention below. Stability And Consistency Of Income Leases tend to be longer for commercial investments, which offer more stability than residential leases, as these can be as short as a few months. However, this is only a benefit for as long as there is a tenant in place Because of the higher risk on commercial leases and the unpredictability of the market, it's harder to replace a commercial tenant than a residential one. While there will likely always be people looking for somewhere to live, there may not be people looking for commercial property, so there are more likely to be longer vacancy periods, meaning the investor will have to cover outgoings without rental income during this period. Reliable Tenants Another benefit of investing in commercial real estate is tenant reliability. A commercial tenant has good reason to keep their rental in good condition because they will often be relying on it to appeal to customers and clients to see profits. This is not the case with a residential property. Maintenance With the previous point in mind, this is especially relevant. A commercial lease is able to state that the tenant has to pay for ongoing costs and maintenance, something that residential leases can't. So, should something go wrong in a commercial property, it's the responsibility of the lessee rather than the investor, meaning they can often see a bigger return on investment due to lower outgoings. Lease Terms However, residential leases, while less flexible, have the benefit of being straightforward and fixed, so the process is streamlined. On the other hand, the differences between individual commercial leases can be huge depending on the type of building and a raft of other factors, meaning investors have to work harder to draw up a lease and may need to pay to hire a lawyer or financial advisor to get this done. Whatever type of property you choose to investment in, our local, expert real estate agents in Nelson Bay can help you find commercial or residential properties in the area. Call us today to discuss our current real estate listings available for inspection in Nelson Bay. @media only screen and (max-width: 600px) {.blog-h2-style {font-size:23px !important;}}