Often times, you’ll hear us talk about the term ‘yield’ as a way of determining how much of your investment you’ll be getting back on your purchased home. This is usually displayed as a percentage, and will often factor into if you buy the idolized home or not. Ideally, you will want a higher yield, as it means more money in your pocket, for any purchased investment.
Neighborhoods with a lot of property and action usually yield a higher return on investment. But what about the long term yield? At Own It Detroit, we have some suggestions on how to figure out your yield for years to come.
The Ups and Downs of Elasticity
Yields tend to ride the waves of the real estate market. When you’re looking at the market, the main factor in a yield is the elasticity, or how quickly the market adapts to changes. For example, if the cost of a house is going up, then a high-elasticity market will show more homes for sale. Consequently, if the prices are lowering, then a high-elasticity market will show fewer homes for sale. When you have a low-elasticity market, it means that changes and their repercussions do not happen as quickly.
What does this mean for your yield? You’ll want to gauge the current elasticity of the market to see where trends are headed. When you look in specific neighborhoods to purchase an investment property, make sure to weigh the elasticity to determine if your long-term investment will remain at a yield you can maintain.
Distressed Sales vs. Normal Sales
Distressed sales are short sales, or homes that sell below market value. When you’re looking at yield, you’ll want to factor in the weight between distressed sales and normal home sales. The more distressed sales in a neighborhood, the more rental opportunities will pop up, giving you a higher yield.
Additionally, you’ll want to also look at how many distressed sales are occurring, and how quickly or slowly they are selling. If distressed sales are minimal, then it will most likely balance out with normal sales, and won’t necessarily give you a higher yield. However, if you’re looking to purchase a home to renovate and rent out, higher distressed sales and supplies are where to head!
The real estate market is always guaranteed to change, but there are certain areas that can help us plan for a more profitable future. Look closely at the neighborhoods you are investing in, and factor in your yields!