Whether you’re marketing your Hamilton property to investors or planning to invest yourself, it is essential to investigate your potential rental yield as part of your market research. Here’s why.
Why examine rental yield?
Rental yield is indicative of the cash flow a rental property will generate over the cost of purchasing the property. If you want to use your investment to generate a day-to-day income, rental yield is a top priority. If you’re interested in making long-term gains, yield is still important, however, you should also consider a property’s capital gain potential.
Data shows that, in general, apartments and flats offer better yield than houses, however, houses tend to generate better capital gains in the long term. As a rule, it’s a good idea to diversify a portfolio with more than one type of property as it can protect your assets from a changing market.
If home values take a sudden dip, for example, your high-yield properties can cover any losses you may experience. On the other hand, if house values and prices rapidly increase, your capital gain properties are there to take advantage of the growth.
If your property is likely to appeal to an investor, rental yield will play an important role in how you price your property. A property’s rental income and sale price are key to determining whether it is a good investment or not. Often referred to as the gross expected return, it’s important to run this analysis to assess how different rent rates and pricing may affect the total yield of your property.
For example, if your home generates $430 per week in rent, but you sell it for $537,500, the yield will be four per cent. Currently in Hamilton, properties that yield over 4.5 per cent are considered “good” yielding investments. Therefore, at $537,500, your property may be a little overpriced for attracting investor buyers.