Return on Investment

How to calculate return on investment?

Investment in property may take much time and effort than you may expect. When you find a great deal, you might need to leverage on other people’s money to increase your return of investment.

How to calculate the return of investment?
Generally, there are 2 components of returns, rental yield per annum and capital gain or so-called capital appreciation.

What is rental yield?
Rental yield is the return based on rental income from the property less maintenance expenses incurred versus the total purchase price of the property. There are gross and net rental yield. Gross Rental Yield is rental versus the purchase price before the expenses incurred and so on and so forth. In rules of thumb, the Net Rental Yield is approximately 85% of the Gross Rental Yield.

There is another rental yield called Net Leverage Rental Yield. This means, the financing cost is taken into calculation when rental yield calcualted. The expenses incurred inclusive of finance cost versus the net gain is defined as Leverage Rental Yield

What is capital gain or so-called capital appreciation?
This is an one time gain when you sell off your property. It is calculated by subtracting your original purchase price from the selling price. The gain versus the amount of capital gain is called capital appreciation.

As Leverage Rental Yield, the Leverage Capital Gain is also taking into consideration of the gain after subtracting the finance cost incurred.

What is total return yield?
The total is the rental yield plus the capital gain over the investment tenor. The return is usually calculated on the internal rate of return formula.

Check the return on investment before invest property in Malaysia.