Gross and Net Yield on refinanced property

[cassian 0]

Hi - I'm trying to work out the gross and net yield on a property that I'm refinancing to fun other BTLs. What I want to know is should I divide the annual income/annual profit by the price I payed for the property originally, or by the most current valuation of the property?

The property was purchased 10 years ago and has seen a decent increase in value so the two possible figures differ a fair bit.

Thanks in advance!

[ayns 7]

Personally I do it by the amount I have physically invested into that property. I.e I have £27,500 tied up in a property at the moment and annually I’m projecting my net income to be £4,345 pa which is circa 15%. 

Next one I am buying will be similar income but hoping for £30k set up with stamp duty etc so 14.5%.

I know some that’ll calculate it gross, some that’ll base it on total property price (normally agents). Personally I would only ever do it on total value if I bought the property outright. Also I just prefer net as it works  for me, whatever you use gross or net just make sure obviously it’s consistent. I also do it over 11mths rather than 12 to account for maintenance etc 

 

 

 

[david slater 76]

Hi there is a good article here comparing the two although it doesnt really cover what happens when you refinance.

personally I would only use gross yield when purchasing a property as a quick check to see if the deal warranted further due diligence. when looking at the impact of remortgage I would want to use return on investment (net rental return divided by investment) as you will find the return improves as you pull more of your original investment out.

return on releasable equity is also good (net rental return / equity that you would realise if you sold property) as this would take into account frictional costs of selling property and would ensure you don’t over leverage - there is a sweet spot for refinancing after which the tax you would pay if you sell the house would be higher than the amount equity you would release when sold.