How the figures are worked out
Gross yield
Twelve months' rent divided by the purchase price. It ignores every cost, so it flatters every property equally.
Net yield
Rent for the year after empty weeks, less levies, rates, insurance, other monthly costs, the maintenance allowance and the management fee, divided by the purchase price.
Cash flow and cash-on-cash return
The net income less twelve bond repayments. Bond repayments use the standard monthly amortisation for the amount, rate and term you enter. Cash-on-cash return divides the year's cash flow by the cash you put in: the price less the bond, plus buying costs.
A fee on rent or on net
A fee on rent received is paid even in a month when costs swallow the rent. A fee on net is a share of what is left after the property's costs, so the manager earns more only when you do.
Questions
What is a good rental yield in South Africa?
It depends on the area, the price and what the property costs to hold. Compare net yield, not gross: levies, rates, insurance, maintenance, vacancy and fees often take a large share of the rent.
What is the difference between gross and net yield?
Gross yield is a year's rent divided by the purchase price. Net yield is a year's rent after vacancy, less the property's running costs and fees, divided by the purchase price.
What is cash-on-cash return?
The year's cash flow after bond repayments, divided by the cash you put in: the price less the bond, plus buying costs such as transfer duty and conveyancing.