With an investment property there are 2 distinct sources of measuring Return on Investment (ROI), rental yield and capital growth.
If you have a property worth $500,000, your tenant pays $25,000 per year in rent and you pay $5,000 a year in costs, you have a gross rental yield of 5%, and a net rental yield of 4%.
For example in 2020 RealEstate.com calclulated the average rental yield across 10 Gold Coast suburbs-:
|Avg. Rental Yields Gold Coast|
|Clear Island Waters||4.04%|
Note COVID 19 has affected these numbers on the Gold Coast. Fox's Real Estate Agents Southport Gold Coast report a serious lack of availability of properties, both for rent and sale.
Capital Growth is the appreciation (or negative return) of the asset itself expressed as a percentage %.
If say you bought a unit at Main Beach on the Gold Coast for $125,000 in 1991 what would be the price now 2021 (30 years) if you gained a 10% pa Capital Growth on average?
|Capital Growth $125,000 30 years|
You may see a better overall return from a property with a lower rental yield and a higher capital growth.
|Price to Income Ratio|
Always check to see if rents are not fasely inflated, or there is not a history of arrears. You can check the rental payment register.
With a good tennant and a long-term lease rental returns can be better than the residential market.