Hi Perizen, let's use examples to illustrate.
Suppose the property is $1.2 million and the rental is $4,000/mth. A quick rental yield calculation would put this at 4%.
Let's say we are prudent and want to include everything.
Commission to agent (one-time every 2 years): $4,000
Furnishing the unit (one-time): $30,000
Property Tax (yearly): $4,800
Maintainence: Estimated $350/mth
For the first year, with the additional furnishing and commission, the yield is only 0.42%.
Over 2 years (which is the likely end of the first tenancy), the yield is 1.8% yearly.
But let's say we rent it out three times, each having a two year lease, and let's say we include touching up/renovation costs of $3,000 every tenancy change and also commission to the agent, the rental yield over 6 years is 2.5%.
At one glance, we might think that 2.5% is awfully low (where are all the agents who promised us 5-8% yield?!?!). However, we must bear in mind that all expenses are covered, and it is a solid 2.5% per year dividend for our investment.
Our $1.2mil investment is making $30,000 for us each year. I'm not sure if there's any financial instrument that would provide a 2.5% yearly dividend.
Not to forget capital appreciation, at the end of six years or anytime within the six years, the property would likely have appreciated in price. The price would likely be conservatively, at $1.5mil.
In conclusion, over 6 years, the rental yield is 2.5% yearly, and the capital gain is 25%. Someone might say, "My stocks and shares rose 200% in a couple weeks! what is a 2.5% dividend and a 25% gain over 6 years!". However, we must note that property investment is the safest investment. If we have only $1.2m to invest, would we dare put all $1.2m in stocks and shares?
For property investment, in the worst case scenario, if the market crashes or even if no one rents anymore, we can still stay in the unit ourselves.
Regards,
Richard Wan
Black Diamond Real Estate
richardwan@live.com
94363793
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