# calculating rental yield

Discussion in 'Real Estate' started by danrts, 7th Feb, 2010.

1. ### danrtsMember

Joined:
26th Jul, 2009
Posts:
14
Location:
Qld
calculating return on investment for IP

I'm interested to know if my calculation of my return on investment is correct

I purchase a \$600,000 investment property inc stamp duty, of which I have a \$160,000 deposit and I borrow the remainder, \$440,000.

My loan is for 6% pa interest only = \$26,400 repayments required pa.

The rent is \$300 per week after agents commission = \$15,600 pa received, leaving a shortfall of \$10,800

Does that mean my return on investment is \$10,800 (shortfall in repayments)/ (\$160,000 + \$26,400 (interest charged pa) % = 5.79% pa

2. ### Simon HampelCo-founderStaff Member

Joined:
9th Jun, 2005
Posts:
4,774
Location:
Sydney, Australia
Your ROI is negative because it is costing you money to hold ... you are not actually making a return (of income) on your investment.

3. ### JacqueTeam InvestEd

Joined:
16th Jun, 2005
Posts:
1,885
Location:
Sydney
Sim is correct but I think you're better off referring to the gross rental yield here, which at \$300x52/\$600K x100=2.6% is pretty lousy!

I use the term ROI to refer to a % figure, based on returns over a time period. For example, a 25% ROI means an investment of \$100K will return \$25K in one year. A 10% ROI means an investment of \$100K will return \$10K per year and so on. When adding value to an IP, for example, those of us who like crunching the numbers can calculate the ROI within a particular time period. Hope this helps.

4. ### James_wMember

Joined:
11th Feb, 2010
Posts:
13
Location:
mars
has this area got good CG value can't see why else you would buy with such a lousy return