When it comes to property investing, real estate agents will always say that it’s about the location. In fact, smart property investors know it’s all about the yield.
The gross yield is the amount of income as a percentage of the purchase price. If the price of a property is $500,000 and it’s returning $500 a week in rent, the yield is about 5% (500 x 52 weeks is $26,000, then divided by 500,000 is 5.2%). If the yield is higher, say around 7% then the rent in this case would be closer to $680 a week. A lower yield of 2% would be about $200 rent a week.
The thing about yields is that they can be an indicator of which way the property prices in that area are likely to head in over the coming years. Higher yields show that the properties are under-priced, lower yields point to prices being too high. A great figure to start with is 5% (’cause it’s easy to calculate – just divide the purchase price by $1,000). If the rental income is higher, great, if it’s much lower (and there’s not good reason why) then no matter the location, think again before buying it.