Shelter Asset Management is a real estate development and advisory company headquartered in Los Angeles. Manned by a team that has decades of experience in the real estate industry, the company has the expertise and market knowledge necessary to conceive and execute development and acquisition projects to success.
Shelter Asset Management seeks real estate investment opportunities in metropolitan areas such as Northern and Southern California; Portland, Oregon; Phoenix, Arizona; and Seattle and Vancouver, Washington. Within these metropolitan areas, the company seeks out value-add mid-rise and high-rise properties with at least 100 units. It bases its investments on sound principles like affordability, capital appreciation, and rental yield potential. Rental yield is a percentage indicator of how much income a property generates over its cost. It represents the return on investment a property generates for its owners. Rental yield is calculated by taking a property’s annual income, dividing it by the cost of the property, and multiplying by 100 to give a percentage. For example, if the monthly rent of a property is $2,000, its annual rental income is $24,000 ($2,000*12). If it cost the owner $480,000 to buy the property, then its rental yield will be 5 percent ([$24,000/$480,000]*100). While this is the straightforward method of calculating rental yield, it only gives gross rental yield, since it ignores the costs associated with owning and renting property. These include taxes, insurance, management fees, repairs and renovations, vacancy costs, and mortgage repayments for properties purchased with debt. These costs reduce a property’s rental income and should, therefore, be factored into the calculation of rental yield to arrive at net rental yield. Net rental yield factors in all the costs of owning a property. It is calculated by taking a property’s annual income, subtracting the total annual costs associated with it, then dividing the result by the purchase price of the property and multiplying by 100. Take the example above. Suppose the property’s annual costs totaled $6,000. The net rental yield would be 3.75 percent ([$24,000-$6,000/$480,0000]*100). Rental yield has plenty of practical uses. For example, investors can use it to calculate how long it will take to break even on their investment. This is when their net yield will total 100 percent. If a property has a net yield of 5 percent, it will take 20 years (100%/5%) for the investor to recoup his or her purchase cost. If the yield is 8 percent, it will take 12.5 years (100%/8%). Investors can also use rental yield to compare the profitability of specific investments in different regions or to determine how much they need to charge in monthly rent to realize a desired return on investment. Furthermore, investors who intend to use debt to purchase property can use rental yield to choose between the loans offered by different lenders. Ideally, rental yield should be much higher than the loan’s interest rate for an investment to be profitable. Notably, while the examples above give definite figures for monthly rent and annual costs, in practice, investors often do not have these values figured out at the negotiation stage, before buying a property. Ironically, this is when they need the data the most. As a result, many investors fall back on estimates. For example, they can look up similar properties in an area to determine the average monthly rent and then inspect the property to estimate how much they will pay for repairs and renovations. It takes skill and experience to correctly estimate the rental yield on a property before purchase. That is why investors should use the services of real estate advisory companies like Shelter Asset Management.
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AuthorStuart Hansen is a respected real estate advisor who works with a team of experienced executives with links spanning China and the Asian markets. Archives
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