Many a time, the layperson investor will take the annual rent collected, divide that by the price that he bought his property, and consider that percentage as his rental yield. Or even worse, there’ll be a few that take their monthly rental minus their monthly loan installments and consider the net cash flow as their rental yield.
As I said in my post on freehold property investments, maintaining a healthy cash flow is a key determinant in your success as a property investor, but it’s important to recognize that monthly installments are part interest and part principal-repayment. To accurately compare property yield to alternative investment yields, you should actually take the total rental income, minus taxes, maintenance fees, annual mortgage interest along with any other costs associated with owning the property, then divide that figure by the total cash downpayment and any related costs rather than by the purchase price.
For ease of reference, I’ve just taken URA’s latest 15 transaction prices and the rental figures for the first quarter of 2012 from a development I’m currently marketing – Duchess Crest.