Return On Investment (ROI) or Yield… Finance Analysis on Your Next Property Investment

If you walk into pretty much any estate agency across the country, make it clear that your property investor and ask to see their finest investment property deals, I can pretty much guarantee you. They’ll put some properties in front of you and start to quote you a percentage return that they feel that that property will actually give you this is called yield. Let me tell you what it is and why it’s completely the wrong set of numbers for you to be focusing on hi there. My name’s, Tony Thor from your first four houses and my channel is all about helping you get to investment property number four as quickly and as painlessly as possible. So, as I say, you’re in your local estate agent, they’ve started the put some properties in front of you. They’re thinking, were your property investor. You’re going to want to know what the yield is. So let’s start things off by looking at that actual equation, so yield is the annual rent usually based on just a single family unit, renting the property divided by the purchase price multiplied by one hundred, and it’s two that the yield that the Estate agent is actually going to be quoting you, so let’s just pause for a minute and have a quick look at this equation. The annual rent, generally speaking, it’s, going to be based on a single family unit, renting the property and in truth there’s, not a huge amount that you can do so actually vary that amount of income that’s coming in. There are a few things that you could do, but not a huge amount of vary that that particular number. Let’s look below the line at the purchase price. Well, the purchase price is the purchase price that’s, what you’re buying it for again there’s not really anything that you can do to actually change that. Consequently, if you get four terraced houses, for example, in a row, let’s imagine we’ve got three bedroom houses to reception rooms. If you look at the yield that you’re gon na get on those, they’re all generally gon na be about the same. In the example I’ve, given you here, they’re, say: 5 now property investors. People are actually doing this professionally use a whole different set of calculations. They use return on investment. Now let’s look at what that equation looks like so we got to take the annual profit. We’re gon na divide that by the cash that we’ve invested in the deal. We multiply that by 100 and again that gives us our return on investment. So again, let’s just pause for a minute and let’s just have a little look above and below the line. So let’s start off with the annual profit. Well, what does that look like? What is it made up off it?’s made up of the annual rent that’s actually coming in, take away the annual costs that are going out, so the annual rent that’s coming in is there actually anything specific that we can do so actually vary that well. The answer is absolutely yes, there is, you might choose the multi, let the property, you might use the la chase strategy. You might split the property up in some way to increase and boost the income. You might change it from commercial to residential or vice versa. There’s a whole bunch of different things that you could do to change the level of income that’s coming in the costs going out. Is there anything that we can do to change that? Absolutely yes, there is! You might have a mortgage with a sizeable deposit, meaning that your annual month, sorry, your monthly costs going out mortgage wise, are less. You might have a very small deposit with a larger mortgage going out. You might have a number of different bills that you’re. Gon na factor into this frankly, the costs going out can vary enormous ly, depending on what you’re, actually doing with the property. So let’s look below the line. Now let’s look at the cash that we’re investing invested in the deal so that’s actually going to include the initial cash that you,’re gon na, invest, plus any refurbishment costs that you’re going to actually put into the Property, so the initial cash that you’re going to invest in this particular property. Can that vary absolutely it? Can you might decide to put 100 of your own funds into buying this particular property? You might actually use an investor’s money so actually to fund this particular project and, in theory, have none of your own money in the actual deal. Now, obviously, that’s going to change a number of other parts of the equation, but it’s a fact that can vary dramatically or what we see somewhere in between you might have a high mortgage of low mortgage. So that is absolutely going to change your refurbishment costs. Can they change? Of course they can, depending on what you were actually going to do with the property they can vary wildly, especially if you’re going to change the class use, for example. So all four parts to this can dramatically change depending on what you’re, actually doing with the place. So if we take those same four properties, it’s, absolutely the case that you can get a 5 return. You could get a 50 return on the house next door. You might get zero on the one after that or if you’ve got. None of your own funds in the property deal at all is absolutely possible that you could get an infinite return on your money and if I look at some of the properties that I’ve got in the right hand, column and the return on investment, it Absolutely says: infinite as a return on my investment. So please please, please, the next time you’re, looking at a number of different projects and you’re trying to decide which one to go for please ignore yield. If you can take the extra effort that it’s actually going to take to calculate a genuine return on new investment and then please base your decisions or at least make one of the components to your decision. The return on the investment. I really hope that you found that helpful. I really do this maternally investment calculation is something that is so dear to my heart, and I genuinely think that a lot of property investors don’t use this when they just want to decide what to buy. If you found that helpful, I would love it if you could take a moment to subscribe to my youtube channel if Facebook is more. Your thing please take a moment to like my Facebook page, and this way I can keep you up to date. Well then, the next property related video is available to you, because all I want to do is to help you on your property investing journey. My name is tony law from your first four houses. I really hope that you found this one helpful look for the ceiling. Thank you.

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