What is yield and how do you calculate yield? The basis for every investment is understanding how much we will earn from this investment.
What is yield and how do you calculate yield?
The basis for each investment is understanding how much we will benefit from this investment. Before we look for an investment zone and before we look for assets, we need to figure out first what yield and how to calculate yield.
I'm sure many of you still don't understand the concept - yield. And this is an opportunity for you all to sort through the whole issue of return on your property and in general, what types of calculations a real estate investor must know.
When we invest money on a particular investment and it doesn't matter if it is real estate or stocks or business we want to know how much we have earned versus how much money we have invested. Therefore, return is the ratio of the annual return we receive in return for the money we invested.
In real estate investment there are a number of yield calculations that we need to know.
The first is the calculation of the gross yield - this is the general yield obtained from the investment, that is, dividing the total expected revenues by the total investment.
The second is calculating the net yield, in this calculation subtract from the income all the expenses expected during the year and this amount divided by the cost of the investment.
The third is called a return on capital - cash on cash, where part of the purchase is made through a loan.
In this case, we would like to know what is the return on the relative share of the capital invested in the transaction. This is a great example of how leverage can increase the return on our capital.
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Why does gross yield actually change us?