This post serves as a guide for property investors on one of the KPIs which they have to be aware of. It is also a post for tenants who are currently paying rent to see if the rent they are overpaying for rent.
In order to first calculate yields, we need to benchmark it against something else. Usually the yields are benchedmark against the current Bank's fixed deposit rate. For more aggressive and more sophisticated investors who have invested in various kinds of investment instruments, they will bench mark the property yield against these investment instruments.
Enclosed is an example of the calculation. I am taking The Heritage condominium located in Seri Kembangan as an example.
Bank Fixed Deposit Rate : 3.15%
Project : The Heritage Residences @ Seri Kembangan
Price : RM 430,000
Built Up : 995 sq. ft.
Rental : RM 2000 (I list it RM 300 below the price listed to factor in the monthly management fees)
Yield : 2300x12/430,000 * 100 = 5.5 %
(yield = monthly rental * 12 months/price paid * 100)
*Price and rental are obtained from iproperty website
For property investors, we can see that the yield is above the bank's fixed deposit rate. This property probably can be bought
For tenants, we can see that the rental can be considered fair. The yield is within 2% standard deviations.
The only factor which I have yet to factored in is the other elements which needs to be considered is the demand factor. There is no point investing in the poperty with a high potential yield if there is no demand. However, I believe I can safely say normally if the yield is above the bank's fixed deposit rate, the demand should be quite ok. Yield's will typically adjusted by itself based on supply and demand.
In order to first calculate yields, we need to benchmark it against something else. Usually the yields are benchedmark against the current Bank's fixed deposit rate. For more aggressive and more sophisticated investors who have invested in various kinds of investment instruments, they will bench mark the property yield against these investment instruments.
Enclosed is an example of the calculation. I am taking The Heritage condominium located in Seri Kembangan as an example.
Bank Fixed Deposit Rate : 3.15%
Project : The Heritage Residences @ Seri Kembangan
Price : RM 430,000
Built Up : 995 sq. ft.
Rental : RM 2000 (I list it RM 300 below the price listed to factor in the monthly management fees)
Yield : 2300x12/430,000 * 100 = 5.5 %
(yield = monthly rental * 12 months/price paid * 100)
*Price and rental are obtained from iproperty website
For property investors, we can see that the yield is above the bank's fixed deposit rate. This property probably can be bought
For tenants, we can see that the rental can be considered fair. The yield is within 2% standard deviations.
The only factor which I have yet to factored in is the other elements which needs to be considered is the demand factor. There is no point investing in the poperty with a high potential yield if there is no demand. However, I believe I can safely say normally if the yield is above the bank's fixed deposit rate, the demand should be quite ok. Yield's will typically adjusted by itself based on supply and demand.