Rental yield is a properties yearly rental income divided by the purchase costs, and multiplied by 100. The total is expressed as a percentage, for example: If you receive $300 per week rent, which equates to $15,600 per year, and the total purchase price of the property was $350,000, the rental yield would be determined as follows: 15,600 / 350,000 x 100 = 4.45% rental yield. With interest rates at their current low levels many properties are leaning towards positive cash flow and achieving more in rent than what is spent on outgoings (interest payments, rates, repairs etc.). As property prices rise in value over time your rental yields will also increase on your portfolio.
Capital growth is the improved value of a property minus all costs, including purchase price, purchase costs, selling costs and renovations or improvements. In Australia capital gains is taxed on this amount after the sale of an investment property, but not on your principle place of residence (ppor). Currently if you own an investment property for more than a year and then sell you are eligible for a 50% discount on CGT.
Equity is the current value of a property minus what you owe to your lender. It can be used instead of a deposit as security to a lender to leverage you into another property purchase. Equity can also be used as security to borrow funds for just for renovations or to fund shortfalls in living expenses. Over the past few years leveraging property equity has enabled myself and many other property investors to live well off a property portfolio without the need to sell. Currently lenders are tightening their policies on low documentation borrowing and this strategy is not currently looked upon very favourably with lenders mortgage insurers during the current financial climate. But who is to say whether this strategy may once again be viable when the financial markets correct themselves.
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