What is my Rate of Return?

Hutt Real Estate Agent

Real Estate Planning with Anna Manning

Most investors who are purchasing an investment property have difficulties determining the rate of return that the rental property can deliver, taking into account the purchase price and rental income.

Determining the rate of return is important in selecting an investment property because rental prices for investment properties differ.

One simple technique that can be used in determining this rate of return is to take the weekly-anticipated rent, multiply this figure by 52 to get the income for the year and then divide that sum by the purchase price. The final figure will be your rental return. Multiply this by 100 if you wish to express this as a percentage.

For example, $290 per week rent on a $250,000 property comes back at 6.0% rent return. The sum is worked out as follows.

$290 x 52 = $15,080 divide this by $250,000 = 0.0603 multiply this by 100 = 6.03%.
That is at the end of the year you have received back 6.0% gross return on your $250,000 purchse price. If you do this for each of your alternative property choices, then the investor will quickly see which one is the best investment.

Rental return is the cashflow that a rental property is able to deliver the investor and it will help determine the long-term profitability of the investment property, as well as the ability of the investor to purchase additional properties.

Anna Manning is a Real Estate Agent at Leaders Real Estate Lower Hutt.
p 027 569 2749 e anna@huttrealestateagent.co.nz

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