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What is Yield?
It can be said that Yield is another variable in the economy that is as important as other variables such as inflation, currency, interest, GDP, etc. Beginner investors who are just entering the investment field should have seen Yield through their eyes. But there may still be doubts about what Yield is and why people who start investing need to know. This article has gathered information about Yield to solve doubts.
Get to know Yield, the rate of return on investment.
Yield is the return on investment in various assets. in a period of time which have different names depending on the type of assets invested, such as
- Stocks yield what is known as dividends.
- Bonds provide a return called interest.
- Real Estate give a return called rent
The returns here may mean Knowing rewards or expected returns Depending on the volatility of the invested securities, yield is usually expressed as a percentage (%) per year according to the amount invested. current market value or the par value of the securities.
Yield can be used to forecast future economic trends and interest rates, for example, during periods when bond yields have increased dramatically. It may point to inflation. and the tendency for banks to raise interest rates as well.
Major Types of Yields
There are different types of yield. Varies according to the calculation of the rate of return on investment in different periods. The key categories are the current rate of return. And the rate of return is calculated until the maturity date.
Current Yield
Current Yield or current rate of return is the simple rate of return on investment. Calculated from annual return received compared to the market price or compared to cost To put it simply, it is the annual return on interest. which can be calculated from the formula
Current rate of return = Yield (i.e. interest stated on bond notes) ÷ market price.
This type of rate of return does not take into account the cash flow value, the price difference (Capital Gain or Loss), or other returns. that may grow from reinvesting interest (Reinvestment)
The yield is calculated until the maturity date (Yield to Maturity).
Yield to Maturity or the rate of return calculated until the maturity date is the rate of return from the purchase date. to the maturity date Put simply, it is the return to be received or expected to be received upon holding the asset to maturity. It is the most popular rate of return in the market. The calculation formula differs according to the conditions of the assets held.
Rental Yield The rate of return that real estate investors will receive.
Talking about the overall picture for the question, what is yield? Let’s look at the yield in real estate in particular. Yield of those who invest in real estate is letting real estate for rent. The rate of return on investment can be divided into 3 main categories, namely Gross Rental Yield, Net Rental Yield, and Rental Yield. Cash for the year (Cash on Cash Rental Yield)
Gross Rental Yield is a method of calculating the rate of return that is suitable for investors who buy real estate without taking out a bank loan. This type of rate of return can be calculated by the following formula.
Gross Rental Yield (%) = (Expected annual rent ÷ Condo price) x 100
For example, invest in a condo at a price of 2,000,000 baht to rent out at a price of 15,000 baht per month, so there will be a rate of return on investment or yield at 9% according to the calculation principle below.
Gross Rental Yield (%) = [ ( 15,000 x 12 ) ÷ 2,000,000 ] x 100 = 9%
Net Rental Yield is a method of calculating the rate of return that is suitable for investors with additional expenses such as common fees, commissions, and other maintenance fees. This type of rate of return can be calculated by the following formula.
Net Rental Yield (%) = [ (Expected annual rent – Annual additional expenses ) ÷ Condo price ] x 100
For example, invest in real estate at the price of 2,000,000 baht to rent out at the price of 15,000 baht per month.
The lessor must pay a common fee of 1,250 baht per month, which is equal to 15,000 baht per year and pay a commission to find a tenant at the beginning of 15,000 baht. Therefore, there will be a rate of return on investment or yield at 7.5% according to the calculation principle. lower
Net Rental Yield (%) = { [ ( 15,000 x 12 ) – ( 15,000 + 15,000 ) ] ÷ 2,000,000 } x 100 = 7.5%
Cash on Cash Rental Yield is a method of calculating the rate of return suitable for investors who borrow a bank loan to purchase a building or condo for rent. causing other expenses such as installment payments, interest, common fees, and decoration fees. This type of rate of return can be calculated from the formula
Cash on Cash Rental Yield (%) = [(Year-long rent – Annual additional expenses) ÷ Investment cost] x 100
For example, invest in a loan to buy real estate at a price of 2,000,000 baht, a down payment of 300,000 baht, a bank installment of 20,000 baht per month, decoration and internet installation of 1,000,000 baht and a common fee of 15,000 baht per year, renting out 25,000 baht per month.
Therefore, there will be a rate of return on investment or yield at 3.4% according to the calculation principle below.
Cash on Cash Rental Yield (%) = { ( 25,000 x 12 ) – [ ( 20,000 x 12 ) + 15,000 ] ] ÷ 1,300,000 ) } x 100 = 3.4%
From the information read What can be seen more that Yield is the rate of return on investment in real estate and varies depending on factors such as the price of real estate. Interest on loans in the case of bank loans, decoration costs, fixed rents, locations, etc. Therefore, choosing real estate for investment Being cheap is therefore an important point that will allow investors to get a worthwhile rate of return.
How to Calculate Return on Investment in General Assets
For how to calculate the rate of return on investment or yield in general assets. Basically, it can be calculated from the formula.
Yield (%) = (Yield ÷ Price of the asset) x 100
For example, investing in stocks for 2,000,000 baht receives dividends of 30,000 baht per year, so there will be a rate of return on investment or yield at 1.5% from the following formula:
Yield (%) = ( 30,000 ÷ 2,000,000 ) x 100 = 1.5 %
At what level should the yield be worth the investment?
In that investment The higher the percentage of yield, the higher the potential return on investment. and point to reduced risks. But be careful that Sometimes a high percentage can be attributed to a drop in the value of a security. Makes when replacing the values in the formula to get a high percentage But the actual return is not as high. However, you should choose an investment with a higher percentage of interest.
For investing in real estate, Rental Yield or a minimum rate of return of 6-8% per year should be considered worth the investment. It is necessary to take into account the interest of the bank as well. Which should get a rate of return 2% higher than the bank interest rate
Beginner investors may have already answered what Yield is , actually Yield is the name. return on investment in various assets And it is considered an important variable that investors should pay attention to, not less than other economic variables. Therefore, studying information and calculating different types of yield before investing will help investors get good returns.
