This time I chose to look at how the real estate yield is calculated from a different angle.
Many of us tend to calculate the real estate return as the sum of the cost of the property divided by the annual rental price and its result in percent is the real estate return. But this is not necessarily the correct calculation.
Some people think differently – when the method says so – let’s say that the cost of the property is NIS 900,000 and related expenses another NIS 100,000 (attorney’s fee for brokerage fee, total cost of the mortgage, renovations and all other ancillary costs) – Together the amount is 1,000,000 NIS.
We we invest equity at the rate 30% Of the total amount and it is calculated as the amount of the “fund” When the balance of the investment (700,000) is taken as a mortgage divided over many years, the return is calculated on the monthly repayment for the mortgage compared to the amount the tenant pays us each month.
For example, the mortgage paid is NIS 4,000 and the rent is NIS 8,000, so our net profit is actually 100% per month.
Regarding the fund – when we decide to sell the property and earn a certain amount, this is the amount we will compare to the fund’s investment, for example if we invested 300,000 in the fund and in the sale of the property we earned 100,000 – the profit is 33% On the amount of the fund!
For convenience, the issue of linkage and taxation was not taken into account.