iRefi Insider School – Cash Yield

♪ [music] ♪ What’s up everybody.
It’s Blandon here from iRefi mortgages. So, how do you know you made a good
investment decision? There are two ways that we make money
from property. One is your cash flow and second, we have your capital growth.
So in this video, I’m going to share with you how you can measure cash yield,
why is it important, and just a couple of examples to show you.
So, if you had \$50,000, how do you know you’re getting the best
return on your money, right? So, cash yield. This is one way to measure
it. So net cash flow, meaning whatever money that you’re getting
back as a one value, one dollar figure, and then divided by your money invested.
This is your cash yield, right? So, I’ll give you an example.
There are two investment opportunities here. One is bond and the
other one being property. So, in the bond, maybe you put in \$50,000 invested and the
promised cash flow that you’re getting is \$2500 per year. So your net cash flow per
year is \$2500, your invested cash is \$50,000. This gives you a 5% cash
yield, right? Now with properties, it’s slightly more involved.
We have to look at the expenses in the property. So I’m just going to rub
this out. So in the property, say, for example, a \$500k property,
you might get around \$26,000 in rental income, okay?
And you’ve got maybe \$22,000 in mortgages and you have \$2,000 in rates and you might
get \$1,000 on insurance and another \$1,000 in maintenance and other management fees.
So if you look at this, \$26,000 minus \$22,000, \$2,000, \$1,000, \$1,000, that is
\$26,000, we have a \$0 figure. So, in this situation, we invested \$50,000
and we get \$0. So \$0 divided by \$50,000, it’s 0%. So in this situation,
the bond gives us a higher cash yield and it’s a better investment. However,
with property, there’s also capital growth which is, sometimes it’s like a delayed
return but in most cases, in different markets,
it could be a literally quick return. So we will cover capital yield in another
video. But what property does, the cool thing about it is there’s a lot
you can do with the property. So, for example, you can actually increase
the rental that you receive by doing things like renovations.
So if you renovated the property, maybe you spent \$5k touchups and you’re
able to increase this to \$29,000, all right? And because you renovated the
property, perhaps the value of the property has gone up and you’re able to
cycle the equity back out. So maybe instead of investing \$50,000,
because the value has gone up, you’re refinancing, cycle the equity back
out, now it’s \$30,000. So the net cash flow over here is \$29,000
minus the \$26,000, you’ve got \$3,000 cash flow. And \$3,000 over \$30,000,
that is 10% cash return. So in this situation,
you became the winner. Now, if you need a little bit more longer
explanation on how cycling the equity works, I suggest one video that you
can start at is the “No Money Down” video on my YouTube channel.
So do check that out and I will do another more extensive one later on called
“A No Money Down Deal, How Do You Do Those?” So hopefully, this is a good way
of measuring how you can look at the returns on your investment property.
So this is just one way, right? Check out our website.
We have a rental yield calculator there. It’s a Google spreadsheet that you can
download. It’s got different yields that you can use. I will leave the link down
below and until next time. Talk soon. ♪ [music] ♪