Property Investment
2 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Reviewed by: Ed McKnight
Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.
This is an article I’ve held off writing for a long time.
For years investors have asked me: “Andrew, what’s a good yield in today’s market?” and “What’s a good return on investment?”
The honest answer is: It depends and it changes all the time.
It depends on:
But still … people keep asking. So I’ve given in, and in this article you’ll learn what I consider a good gross yield and return-on-investment in today’s market.
You’ll also learn how these numbers change based on if you’re using the No Cash Needed strategy.
I’ll also update this article frequently so you’ve got the latest numbers.
Here are the numbers I target for growth properties:
And also the numbers I target for yield properties:
Not sure what these numbers mean?
Yield is a way to measure how much rental income a property earns, compared to its current value.
There are different types of yield (e.g. Net Yield and Gross Yield).
But when most people use the word ‘yield’ – they mean Gross Yield. That’s what I mean in this article.
To calculate gross yield, you take the annual rent and divide it by the property’s current value, then multiply by 100 to get a percentage.
Gross Yield = (Annual Rent ÷ Property Value) × 100
So, if your property rents for $600 a week (roughly $31,200 a year), and it’s worth $600,000 – the gross yield is:
($31,200 ÷ $600,000) × 100 = 5.2% Gross Yield
But remember, a gross yield doesn’t include things like rates, insurance, property management or maintenance.
Those numbers factor into a Net Yield – a more detailed but less commonly used metric in day-to-day investor chats.
Yes, a gross yield is simple, and that’s why it’s so popular. It gives you a quick snapshot of a property’s income potential.
But it’s not the only number that matters. The more comprehensive return on investment will give you a more in-depth idea of whether your property is a good investment.
Return on Investment (ROI) asks a different question:
“If I put $1 into this investment, how many dollars do I get back?”
And I like to measure this over 15 years. That’s what we calculate in Opes+ – the software we released to help property investors make smarter investment decisions.
It looks at how much cash and deposit you’re putting into a deal, and how much return (often cashflow or capital growth) you get in return.
This means your ROI can change dramatically based on:
For example, if you were buying a property with the No Cash Needed method, we would expect to see (for a growth property).
That’s why in the tables (above) I show ROI for different properties set up in different ways.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
