We use the following various metrics to analyse how good a property deal is:
Gross Yield = Annual Rent / Property Price
Net Yield = Annual Profit after all costs / Property Price
ROCE /ROI = Annual cash profit / Total cash invested
In addition to the above we also look at the cash flow for a property because if the above metrics are all really good but the cash flow is really low, then it leaves the property exposed if there is a large maintenance bill such as a new boiler or movements in interest rates.
Some investors use a definition of the above including capital growth in the numbers; this we would advise against as capital appreciation is always speculative so we see this as a bonus.
