Warning – This is not financial advice. Always seek professional consultation whenever making investment decisions.
As an inventory clerk, you work with many people, some of whom are property investors, career landlords or estate agents. As a business owner in the housing industry, understanding the housing market comes as part of the job.
We at Professional Inventories App want to give you an overview of how some people you meet make investment decisions so that you can understand your market and how they run their business. This will give you an insight and a technical understanding of your client base.
Gross Yield
Gross yield is the income return on investment before expenses, this preliminary guide helps investors when they don’t know what mortgage, repair, taxes and maintenance costs could be. The Gross Yield will be quite high because of the many unknowns but is useful in the first instances.
Gross Yield = Annual Rent / Property Value
Net Yield
Net yield, as you may have guessed, is the return on investment after expenses.
Expenses can include management fees, mortgage repayments, repairs, insurance, taxes and anything else related to owning a property. Some of these costs are unknown, like repairs and maintenance. Many landlords hold back 8% to 12% of the monthly rent to cover these unexpected expenses that crop up.
Net Yield = (Annual Rent–Operational Costs) / Property Value
Return On Investment – ROI
Sometimes referred to as Return On Capital Employed (ROCE) or Return On Cash (ROC)
Unlike Gross or Net Yield, ROI only considers money investment by the landlord and not by the bank. This provides a true percentage return on investment.
Start by calculating Net Profit by taking monthly rent and subtracting any mortgage payments, service charges, management fees, taxes, etc. Anything left over after all the costs incurred by owning a property?
Next, we need the cash invested by the property owner, not the money the mortgage company invested but the cold hard cash that the investor handed over
When we divide these two, we have a percentage of return
Return On Investment = Net Profit (Rent – Mortgage – Other Costs) / Cash Invested
Now you know some of the basic terminology used by property investors we hope you will better engage with potential clients needing inventory services