INVESTMENT

What is yield?

Yield is a generic property term with a few sub-variations, but essentially is a measure of income return. LiveYield.co.uk generally talks in terms of gross yield, unless otherwise stated.

Gross Yield = Gross Income / Purchase Price (including acquisition costs).

Gross Income is the rent the tenant is paying, before deductions for void periods and landlord non-recoverable running costs (such as letting and management fees, maintenance and insurance). For example, a property let to a tenant at a rent of £10,000pa and a total cost of £100,000 would equate to a 10% gross yield.

An investor should carry out their own analysis of void periods and non-recoverable costs to establish the property’s Net Yield.

Net Yield = Income (net of landlord non recoverable running costs or voids) / Purchase Price (including acquisition costs).

Is the LiveYield Estimate a gross or net yield?

The LiveYield Estimate is a gross yield based on an Estimated Rental Value.

LiveYield Estimate = Estimated Rental Value (i.e. Gross Income) / Asking Price (including acquisition costs).

What is Estimated Rental Value (ERV)?

Estimated Rental Value (ERV) is an estimate of Gross Income, the price at which a tenant agrees to let the property for.

Where do you get your data from?

Our property sales are from Zoopla.

Via the government open initiative we access data from a number of sources including the ONS and VOA who maintain the largest database of achieved rents in the UK at a local authority level. We use our own proprietary algorithm to calculate rental estimates at a postcode level.

What reliance should I place on the LiveYield Estimate?

The yield estimate provided on our website is based on averaged data in the location for similar property. It is intended solely as a guide to help identify potential misplacing and outliers and should not be relied upon for investment purposes.

We also provide a yield range which represents a lower and upper quartile of likely rents. The likely achieved yield should fall within this range with a high confidence level, but each property is unique and the achieved rent will depend on the quality and rental prospects of the individual property. For example, a higher quality stock in a strong location will command a higher rent and therefore the upper quartile gross rental yield estimate is likely to be more appropriate as a guide.

The LiveYield Estimate represents a big-data solution and as such we can expect a degree of error. However, at an aggregate level this statistical risk reduces and allow for accurate geographical comparison.

Remember this is an illustrative search tool, a starting point to help you identify areas and investment properties. As a prospective investor you should always carry out detailed due diligence to produce your own assessment of gross and net income. This will then establish your net yield to use as a starting point to estimate the potential return on investment.

None of the Services are intended as advise or should be used as a substitute for advice from suitably qualified professionals. We shall not be liable for any losses suffered as a result of relying on our yield estimates. Please also see our terms and conditions.

How does your Return Calculator Work?

Our return calculator shows both the Return on Investment (ROI or Return on Property) and the Return on Equity (ROE). ROI or Property Return is the return of the underlying investment regardless of capital structure. It is a pre-tax return.

In simple terms:

Return on Property (ROI) = (Income + Capital) / Property Cost

It’s the return on the property if you bought it entirely with cash (i.e. 100% equity, 0% mortgage debt). In this case the ROI would be equal to your ROE. However, if you bought the property using a mortgage (e.g. 70%) the equity you have invested reduces by a corresponding amount (to 30%), yet you still have own the entire gain (or loss) of the property, less your Cost of Finance (COF). This is called gearing (or leverage).

In simple terms: Return on Equity (ROE) = (Income + Capital – COF) / Equity

Assuming the ROI is greater than your COF over your hold period your ROE will be higher than your ROI.

ROI > COF = ROE > ROI

Gearing is a double edged sword though: if the finance rate is higher than the return on the underlying investment, debt will serve to erode return on equity and you can stand to lose more than your original equity (negative equity).

ROI < COF = ROE < ROI

The less equity you put in the more highly geared and the more variable your returns are on both the upside and the downside. The calculator is there to highlight the potential effect on your return by altering your level of gearing, or in simple terms the size of your mortgage.

Our ROI calculator is intended to act as a guide and should not be relied upon for investment decision-making purposes. We make inital assumptions, required to complete the calculation which can be overwritten by the user. This tool is illustrative and does not constitute advice. LiveYield does not warranty for its accuracy. It is no substitute for your own research and analysis. If you’re not qualified to make your own assessment then you should seek independent professional advice. We shall not be liable for any losses suffered as a result of relying on our ROE illustrations.