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Working Out Yields

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silliemillie | 19:43 Sun 12th Feb 2017 | How it Works
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On property programs they often refer to what yields the home owner would get if they rented it out.

How is this worked out? In simply terms please!
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e.g. property worth £100,000 let for £7,500 p.a. gives a gross yield of 7.5% (deducting costs from the rental income would give the net yield). So, the yield is a function of the income from a property compared to its cost.

It can also be used where the rental income is the known factor, in order to obtain the value of a property. In the example above, if it were known that the property could be let for £7,500 p.a. and that properties of that type in the area were generally yielding 7.5%, then the value could be calculated by diving the rental income by the yield to get the value, i.e. £100,000.
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Thanks AK, so it's not what you bought it for its what it's worth now? Is that right?
Question Author
I'm asking for a friend as she's having trouble with her letting agent. Flat us worth 200k but she's only getting £530 in rent after fees. I'm working that out to be just over 3% is that right?
Yep 3.18 per cent
Yea your calculation is correct.
£530 per month = £6360 per annum.
6360/200000 x 100 = 3.18%.
These figures look pretty dire in my opinion. I have a friend who rents out houses and some of his properties are worth half of what your friend's is worth, yet he still gets roughly the same in rent.
I'd advise your friend to have a serious look at these figures.
Who says it's worth £200k millie?
How much are fees 15 - 20% of rental income?
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Yes thats pretty dire, I agree. That's why she's looking to take it back.

Ladybirder - an identical flat in the same block has just sold for 200000k
Surely the rent yield on a property takes in a lot more factors than the value?Location,facilities and demand in the area play a big part.It can't be just a simple percentage of value.
You're right Prudie, you have to choose carefully and do your homework.

OK millie, just wondered.
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Thanks for all your advice, I will pass it on.
She just needs a rough idea as she's sure the Agents are ripping her off.
I think she should just ask them how much their fees are.
I would say that a 6% yield would not be unreasonable (before fees). This would require a gross rent of £1000 per month .... not too unreasonable .... yet she's only getting £530 per month.
They are either charging too little rent, or their fees are exorbitant .... I'd be desperately trying to find out which one it is ....
I would have thought that the yield should be calculated using the cost of the property that your friend paid, not the current market value, otherwise, as property prices rise, the yield will subsequently fall unless the rent is increased accordingly.
that's crazy low rent. Do you know how much the tenants are paying each month to the estate agent? I would tell her to talk to some other estate agents to see how much they would charge.

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