Yield calculation
Yield calculation
How do you calculate yield?
One of the parameters we take into account in purchasing this property is our net yield. Ie rental income minus expenses = net income.
To calculate yield we will take the net income and divide by the purchase price.
This will give the yield.
If an example property costs $ 100000 and the net rental income in a year is $ 10000 it means that my return is 10% and that means I will return the investment assuming it will be the rate of return each year, while 10 years
When you approach different companies in Israel, they will therefore present the expenses that a property in the United States has in different forms.
Some will give you a more complete and accurate picture and some less.
Let's begin with what is clear and known
Of the income you receive from the tenant each month there are expenses like
Management Fee
This usually ranges from 6-10% of the actual rental that came in (topic to another post, why I in all the companies I work with I prefer to pay as much as possible, 10%)
property tax
We property owners pay property taxes to the city and county
ביטוח
We pay for property insurance against catastrophes
maintenance
Repairs to the property that are natural and reasonable wear and tear
These are the basic recognized expenses that the property has.
Some of the companies that offer properties in the US will show you this,
Others will continue to go down to so-called small but cumulative expenses:
Annual Report in the United States - We are required by law to submit annual reports to the tax authorities in the United States (and in Israel)
Occupancy and rental permits - there is this in some countries, it means that city inspectors must be given approval that the property is habitable - it costs money
Accounts when the property is empty - electricity, gas, water, mowing grass, clearing snow and more
Mediation month or part of the first month
The management company may charge registration fees for the property for you, the municipality,
It may back up using a portal
On issuing a warning letter to a tenant who does not pay.
Company Maintenance Fees - While this can be as low as $ 25 per year, it is still an expense
Please note that when you transfer money to purchase the property in Israel, it costs money,
Transferring money from your bank account in America also costs money.
Therefore it is important to check everything in advance,
It is important to know these expenses,
And you have to understand that this is business. And like any other business, the more you know and know the local laws the better
The expectation of income and expenses, so you will know where you are going and you will not be surprised.
Here is an example -
You bought a renovated property at 50000 $ and it was rented at $ 1000 a month
Expenditure at annual level
As mentioned in the gross annual income 12000 gross
Downloads:
1200 Management
1000 Arnona
600 Insurance
1000 fixes
500 accountant
25 Maintenance Company
100 rental approvals
200 accounts when the house was re.
500 brokerage fees once every two years…
Total expenses by this example 5125
Total net profit after expenses before taxes: 4875 $
9.75% Yield
This is just an example.
HAPPY NEW YEAR
Link to the original post on the United States Real Estate Forum on Facebook - Works on a desktop computer:
https://www.facebook.com/1885945295012997/posts/2201591326781724
The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion
Benny Shalev
Shay, you're a champion! Thank you so much for the information and knowledge?
Osher Shiluk
So true! Small things must be emphasized.
Excellent
Jacob Sapoj
Very nice! And very important!
Warmly offers to every investor begins to make sure that all the components exist, if there is no component ZA that the calculated return is inaccurate and optimistic from reality!
And remember that a property that has undergone a major renovation will have maintenance expenses, if not in the renovation year then in the second or third year
And tenant turnover must be taken into account.
And in the long run you have to look at the average of a number that would match the exit strategy. (For example, 5-10 years)
I also add a long-term maintenance component (Capex) for example: an air conditioner whose life is 10 years but this property should be replaced within 5 years. A roof whose average life is 20 a year but needs to be replaced within 7 years, is not classic maintenance and it is important to consider as well.
good luck!
Hey, Shay.
The calculation is theoretically correct. Practically, it is important to note the timing of the purchase and sale, financing costs, exchange rate differences, cumulative periodic wear and tear, how to deal with a problematic tenant and loss of income.
Thank you!
Thank you .. It is always important to be sharp
The total net profit after expenses before taxes is 6875 🙂
Hi Shi. Fun to hear from you again towards the end of the year. Definitely a post that teaches and educates on calculating return and of course it will go into real estate for the glory of the world! Be strong and courageous!?????