The process of analyzing the intended returns the property is hoped to gain is done by three very different methods.
They would include the gross yield, the net yield and the actual cash flow yield.
All three methods will effectively show the investor the type of returns that are likely to be enjoyed through the purchase of the intended property.
Therefore before any commitment is made, it would be advantages to conduct any one of these analyzing tactics to ensure a wise investment is done.
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Basically the gross yield is where the rental is calculated on a 52 week ratio and then divided by the purchase price. The figure derived from this calculation is the gross yield in percentage.
This is a fairly simple way of making a calculation to deduce if the property will present a viable return.
The net yield however is a little more complicated as it takes into account several different factors before making a suitable calculation on the profits it derives.
Points that are taken into consideration as reflected in the eventual calculations are such as, rates either local or regional whichever one applies, insurance costs, provisions for repairs and maintenance, vacancy periods and other expenses that might be incurred.
Therefore in this scenario the calculations would be based on the weekly rental multiplied by the on year period which is 52 weeks, whereupon the estimated expenses would be deducted from this figure and then the balance would be divided by the cost of the property. The total derived would reflect the percentage of profit yielded.
While the cash flow yield is also just an estimate it portrays a much clearer picture of the true yields when compared to the other two
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types. Here the interest rates and other expenses and taxes are also included in the general calculations.