People like to talk about yield, and put a lot of weight on calculating yield for an investment apartment. True, the yield is a very important index, and above all very considered, but at the same time it is also a completely imaginary index.
You can never know the return, as it depends on some kind of missing data. Not only future data, but also data that is not available since you have not yet closed her mortgage.
Despite all of this, it is important to remember that this is a particularly important index, since, even though, like the other indices, it is an index that we can only imagine, it is the one that will dictate whether it is worth entering into a transaction, or whether it is not worth entering into it.
Two channels of calculating the return on an investment apartment:
Calculation of yield for an investment apartment Can only be done retrospectively, but like any other calculation it is also done in advance. strange? Challenging? Well, let’s think about it for a moment. What in your life can you really know in advance? Except for the fact that a day will come and they will end, nothing can be known, and we base all actions in our lives on faith because we know how to anticipate, more or less, what a day will bring forth.
When you, like any other investor, of any scale and magnitude, consider whether to enter this or that investment, you must rely on existing data, or in other words – on past data. Do they necessarily point to the future? Definately not. But they are the data that have led the investing public since time immemorial, and they are the data that must be relied on even now.
Calculation of yield for the apartment in which you are considering investing your money is divided into two:
- Capital return – This is essentially the increase in the value of the property from the moment of purchase, the yield that occurs from the difference between the amount you bought and the amount you can sell.
- current yield – or the yield, calculated directly in relation to the monthly rent you will receive for your property. (From this we learn that current yield is of course only available if the property is indeed intended to be offered for rent)
How is the actual calculation performed?
Well, the calculation of capital return is based on statistics of the average price increase in past years, while projecting a future forecast. This changes drastically when it comes to properties in neighborhoods and areas intended for significant development. In cases such as a neighborhood that is going to be cleared for construction or TAMA projects, or places where the light rail will pass or other significant urban development will be done, then the capital return will be a significant component in the decision to invest.
The actual calculation of current yield, on the other hand, is based on simpler mathematics, since the changes in rent do not rise drastically as in the announcement of TAMA, for example. The current yield is calculated as the ratio between the income of 12 months of rent compared to the current value of the apartment.
