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A measure of the profitability of a rental property that takes into account the expenses associated with owning and maintaining the property.
The net yield is a more accurate indicator of the overall profitability of a rental property than gross yield, as it takes into account the costs of owning and maintaining the property. However, it is important to note that net yield can vary significantly depending on the specific expenses associated with a property and the local market conditions.
The net yield is calculated by subtracting these expenses from the gross rental income of the property and dividing the resulting number by the purchase price or current market value of the property.
For example we calculate the net yield for real estate assets on the MetaWealth™ app like using this formula:
Year 1 Gross Rental Income of €126,700 and expenses totalling €11,973 would be calculated as follows:
(€126,700 - €11,973) / €2,000,000 = 5.74%
The factors we are taking into account when calculating the expenses are these:
Property Taxes:
Taxes that are levied on real estate by local governments. The amount of property tax that a property owner is required to pay is typically based on the value of the property, although other factors such as the location and use of the property may also be considered.
Annual Asset Management:
The charges are assessed by asset management firms to cover the costs of managing investment assets on behalf of clients, covering activities such as leasing, tenant issues, portfolio monitoring, risk management, and reporting to clients.
Fees on this asset are based on the total gross rental income generated by the portfolio of apartments over the course of a year, and are calculated by multiplying the gross rental income by the asset management fee percentage. For example in Year 1, €126,700 x 5% = € 6,335.
Hold Period:
Refers to the length of time that an investor intends to own an asset.
This can vary widely depending on the investor's goals, specific characteristics of the property and external factors like market conditions.
MetaWealth™ has recommended an Investment Hold Period of 5 Years for this type of asset based on the investment goals of; passive income and capital appreciation.
Extra reading:
https://www.metawealth.co/how-metawealth-investments-work
https://housing.com/news/yield/
If you have any other questions please feel free to reach out to us using the contact us page.
Customer Support
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