For many, buying a property means finally being able to fulfill their dream of owning their own home. Others primarily see the financial gain that can come with buying a property. After all, a condominium is a profitable investment.
Real estate yield - definition
The return on real estate is the profit or income that a property generates within a certain period of time. In addition to the return on real estate, there are also other returns that can be achieved when investing in different capital investments.
Are there different forms of real estate returns?
In the case of real estate yields, a basic distinction is made between two different forms of yield:
- Return on sale: When you invest in a property, its value increases over the years if you have made a good investment. One of the reasons for this is that property prices in popular residential areas are subject to constant growth. If you want to make a profit by selling your property at a later date, you can live in it yourself until you sell it. This saves you rental expenses and gives you other advantages. For example, you can furnish your home according to your personal wishes. Refurbishment work should be seen as a further investment, as it increases the value of the property.
- Yield through rental income: If you rent out the property, you will benefit from the monthly rental income. Of course, you need to build up reserves for possible renovation work or damage, but you can still calculate an annual return based on the rental income. Rental income is constantly increasing, as rental prices are rising in popular residential areas.
How can the return on a property be calculated?
If you view the purchase of a particular property as an investment, then the focus is no longer on whether you personally like the property or whether you want to live here for the rest of your life. There are other criteria that are much more important in this context. For example, whether prices in the residential area will rise or whether they have already reached their peak. Or how much upcoming renovation work will cost and whether the property can be rented out well.
There are several ways to calculate the return on a property:
- Net rental yield
- Gross rental yield
- Property yield
- Rent multiplier
- Property yield
Depending on which calculation method is used, different aspects of the investment can be analyzed.
What factors influence the return on real estate?
The yield on an apartment or house is influenced by various factors. When you buy the property, you should already take these criteria into account so that you can be sure of a reliable return.
- Purchase price of the property
- Building fabric and quality
- Location
- Possible uses and floor plan
- Renovation work
If you pay attention to these aspects, nothing stands in the way of a successful investment.
