There are many ways to calculate rental yields, but when it comes to crowdfunding, there are two main methods: the debt-based and equity-based methods. In this blog post, we will explore both of these methods in depth and discuss which one might be best for you. Keep in mind that each method has its own advantages and disadvantages, so make sure you do your research before deciding which route to take!
The debt-based method is the most common way to calculate rental yields. This method takes into account the amount of money that is borrowed to finance the property and the interest rate on the loan. The formula for this method is:
Interest payment ÷ Total loan amount = Rental yield
For example, if you have a eur100,000 loan with an interest rate of five percent, your annual interest payment would be eur5000. Therefore, your rental yield would be:
eur5000 ÷ eur100,000 = 0.05, or five percent.
The equity-based method is less common but it can be more accurate in some cases. This method takes into account the value of the property minus the amount of money borrowed to finance it. The formula for this method is:
(Property value - Loan amount) ÷ Property value = Rental yield
For example, if you have a property that is worth eur100,000 and you have borrowed eur50,000 to finance it, your equity would be eur50,000. Therefore, your rental yield would be:
(eur100,000 - eur50,000) ÷ eur100,000 = 0.50, or 50 percent.
As you can see, the equity-based method can sometimes produce a higher rental yield than the debt-based method. However, it is important to remember that the equity-based method is more risky because it has your capital invested. So be sure to do your research on both investment calculation methods and consider which one might be best for you. Good luck with your crowdfunding investment journey !