Yields. Best explained as a percentage of the income returned on your investment.
In property, yields are often used to determine whether a property is financially worth purchasing. Too low a yield, and it means that you’re going to need a long time before your investment pays for itself. The higher the yield, the more income you are receiving compared to how much you paid for it.
As part of our previous posts on why residential investors are leaning towards commercial property, we mentioned yield being a big reason for this.
How are yields calculated?
A typical commercial yield runs on a net basis (which means, the money you earn in after paying out the outgoings / operating expenses of the property such as council rates). Even with this, commercial yields tend to be higher than residential – which are often calculated on a gross basis (rent in, before you pay anything out).
To calculate apples with apples, the best way to achieve your yield is:
Add: Income In (Rent, Outgoings recoverable, if any)
Less: Expenses Out (All property going / regular maintenance & administrative costs, statutory expenses other than capital items)
= Net Return
>> Net Returned divided by Sale/Purchase Price = Net Yield.
For those playing along with Gross Yields on the Residential Side, you’re looking at:
>> Income In divided by Sale/Purchase Price = Gross Yield.
So what are typical yields?
Average Gross Residential Yields in Brisbane are currently sitting around 3.7% for a home, and 5.2% for apartments. Please note – this is BEFORE any deductions for the expenses.
Typical commercial yields vary depending on a lot of aspects, mainly the type of property (retail, office, warehouse for example), the location and of course, the intricacies such as WALE (not the swimming type). As the industry moves and grows, so too do the yields achieved.
Average Net Rental Yields in Brisbane are sitting between 5% and 8% at the moment. This is AFTER any deductions, so a Gross yield would be elevate our percentages higher.
As you can see – yields are a huge benefit to commercial property. As always, however – you need to factor in more than just one aspect of a property before considering to purchase, as yields play only one part.
Stay tuned for our upcoming posts about what else you should consider when purchasing a commercial property.
Do get in touch with us if you’re looking at purchasing or selling your commercial property, so that we can help ensure you have all the facts!
