Real Estate Investment Yields
To determine whether renting out your condo is worth it, there are a couple of key factors to consider:
- Yield calculation
- Long-term increases in real estate prices
When considering renting out a condominium, investors often encounter the term "yield." But what does it mean? Let's delve into what yield refers to and its significance.
In simple terms, yield refers to the return on investment derived from renting out real estate properties. It is calculated by comparing rental income to expenses, serving as a fundamental metric for assessing real estate investments. It also helps investors align rental rates with market conditions and property location, similar to comparing interest rates on deposits.
Real estate investments offer different types of yields. We will talk about rental yield from personally renting out the property, and guaranteed yield, which ensures a return on investment.
Rental yield involves calculating returns from renting out a property, accounting for property costs (including furnishings) and rental income. Real estate yields fall into two main categories:
1. Gross Rental Yield
Gross rental yield represents the initial return when renting out the property, often when you buy a condo or property and rent it out immediately. This typically includes furnishings and amenities for the tenant. This type of investment suits those with funds available for investment without financing.
2. Net Rental Yield
Net rental yield is the net return after accounting for factors like common area fees and commissions, often relevant when renting through real estate agents. See below for an example of owner-borne expenses.
Please note that the numbers provided in the table above for common area fees, purchase price, rental, and other expenses are purely for illustrative purposes. They are not intended to represent actual costs or figures, but rather to serve as examples to help explain how calculations are made for easy understanding.
*How to calculate Net Rental Yield
Calculating net rental yield involves variables such as common area fees and other owner obligations. It is a comprehensive calculation that factors in these costs.
Guaranteed yield is a type of yield where rental income is assured by the property operator. Many developers market their projects by offering guaranteed rental yields. This provides clarity on returns and the timeframe for delivering said returns, thereby instilling confidence in investors. Typically, the timeframe for this guarantee is set, often for 2-3 years.
Image: The Reserve Sathorn
Selecting Investment Property Locations for Renting
Location is a crucial factor for successful renting. When choosing a location for investment, targeting foreign tenants can be achieved by selecting central city locations.
1. Nearby BTS or MRT
Proximity to mass transit systems like BTS or MRT stations is key. Being in the heart of the city, close to or within 500 meters of these stations, makes it easier for potential tenants to access public transportation, making your property more desirable.
2. Nearby Educational Institutions, Schools or Universities
If targeting students, scholars, or faculty members, proximity to universities or educational institutions in business districts can also expand your potential tenant base to office workers, increasing your property's value and potential for long-term rentals.
3. Nearby Shopping Malls or Other Amenities
Everyone desires convenience, so properties near shopping centers, entertainment options or hospitals hold an advantage. Such amenities elevate your property’s value, making it highly sought-after in the market and a safe bet for real estate investment.
In essence, yield is a way to assess and calculate returns compared to other types of investments. It also involves various factors that investors should consider. To make a successful investment in rental properties, it's crucial for property owners to manage tenant-related issues effectively, ensuring that tenants are satisfied and willing to renew their leases. If investors face challenges in managing tenants during the rental period or lack the time to do so, they can consider appointing agents to take care of these matters.
CBRE offers services related to finding tenants, rental property advice and tenancy management during the rental period.
This article does not guarantee any return on rental investment. The figures provided above are solely estimates based on the rental prices that buyers have historically achieved. The actual rental income may vary and is subject to various factors including economic conditions, the quality of furniture and decoration, and regular maintenance of the room, among others.