Valuation - Yields

Question 1

How is yield calculated?

Answer 1

A yield is calculated by income divided by price x 100

Yield is calculated by income divided by price x 100

Question 2

What is a Years Purchase?

Answer 2

A Years Purchase is calculated by dividing 100 by the Yield. This is the number of years required for its income to repay its purchase price

A Years Purchase is calculated by dividing 100 by the Yield. This is the number of years required for its income to repay its purchase price

Question 3

What factors affect determining a yield?

Answer 3

Risk is the major factor when determining a yield, in relation to factors such as prospects for rental and capital growth, quality of location and covenant, use of the property, lease terms, obsolescence, voids, security and regularity of income, and liquidity

Risk is the major factor when determining a yield, in relation to factors such as prospects for rental and capital growth, quality of location and covenant, use of the property, lease terms, obsolescence, voids, security and regularity of income, and liquidity

Question 4

What is a return in property?

Answer 4

A return is the term used to describe the performance of a property. It is measured retrospectively and can be found using a DCF calculation to determine the internal rate of return

A return is the term used to describe the performance of a property. It is measured retrospectively and can be found using a DCF calculation to determine the internal rate of return

Question 5

What are secondary yields?

Answer 5

Secondary yields reflect the reasons for a yield gap between prime and secondary yields to account for various risks

Secondary yields reflect the reasons for a yield gap between prime and secondary yields to account for various risks

Question 6

What does ‘All growth implicit’ mean in relation to yield?

Answer 6

All growth implicit refers to the assumptions made in the selected yield, where risks are hidden and need to be considered using a comparable method of valuation

All growth implicit refers to the assumptions made in the selected yield, where risks are hidden and need to be considered using a comparable method of valuation