Yield Return Vs R.O.I

[Kenneth Lim]

We seen alot on the newspaper regarding some properties with high yield return but when we work it out, some of them shows negative cashflow.

[b]Yield Return = gross rental x 12mths / total amt of property

ROI = cashflow x 12mths / the amt you put in[/b]

When we look at a property, can we just look at the ROI and just ignore the yield return because I find yield return is not accuate at all because the gross rental consists of money that does not go into our pocket (goes to monthly mortgage, expenses...) whereas the ROI consists of money that goes into our pocket.

I could be wrong. Please correct me if I am wrong. Thank you.

[Ned Carey]

>When we look at a property, can we just look at the ROI and just ignore the yield return

I have not heard it expressed as "Yield return" But the formula you showed is almost a useless messure. Essentially what a yield return is; a Gross Rent Multiplier. GRM is a common term, but it is the most crude measure of a rental investment. I use GRM as a quick screening tool but would never buy based on that alone.

There are many ways to evaluate income producing property. You absolutely should estimate you ROI, (or cash on cash return) but other factors like appreciation potential, potential for updside management, forced appreciation, or high equity because of a below market price, all need to be factored in.

In my area I see many negative cash flow deals. I wonder who they expect to sell to. Sellers and agents use terms like yeild return because they would never sell the property using real numbers.

Don't forget to add all the hidden costs into you calculations. There is a LOT more to owning rentals than just Principal, interest, taxes and insurance.

Ned Carey
[url]Firstly, You are NOT looking for properties, you are looking for motivated sellers. Real estate is not hard to find; the earth is made out of it!:D What you are looking for is GOOD deals and they come from motivated sellers.

Think about what might motivate a seller; bankruptcy, divorce, death, job change, job loss, foreclosure, burnt out landlord etc etc. Now find a way to reach those sellers.

As someone already said most of the best deals come from dealing directly with the owner, not listed properties. Also many good deals are negotiated. I have heard of some massive drops in price that have been negotiated. You have to make offers. You just don't go looking in the MLS for owner financing, no money down deals at 60 cents on the dollar. They may be in there but they are negotiated that way not listed that way.

Ned Carey
http://baltimorerealestateinvestingblog.com/[/url]