Analyzing rental yields – what this means for investors and renters

An article was published by Fiona Reddan on the Irish Times early this morning examining and evaluating property investment options in and around Dublin today. The article uses the measure of rental yields, how much rental income a property generates as a percentage of its market value, to compare the worthiness of investment options.

 

The major finding in the article was a negative correlation between housing prices and rental yields, meaning that, in Ireland, higher priced properties generate lower investment yields on average. The worst places to invest includes areas such as Dublin 6, Dublin 4, and Dublin 14, where average sale prices are well above €500,000. The best places to invest includes Dublin 10 and Dublin 2, where the average market value of property is much lower. In Dublin 6 for example, the average sale price is €706,741, while rental yields are only 3.6%. On the other hand, in Dublin 10, the average sale price is €173,478, but the annual rental yield is 10.4%.

 

These …

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Irish rents vs yields for one bed apartments

Looking at the yields versus the monthly rents for one bedroom apartments in the all the Dublin regions for quarter four of 2015, it can be seen that the rents ranged from €888 for North County Dublin to €1,480 for Dublin 4, while yields ranged from 5.7% for Dublin 6 up to 10.5% for Dublin 10.

Dublin County was divided into 25 areas corresponding with the postal districts plus North, South & West Dublin and we were attempting to see what relationship exists if any between the amount of monthly rent paid and the yield generated for the owner.

The yield is the gross figure and can be directly related back to the price of the property by calculating the annual rent and multiplying this by the multiplier which is calculated by dividing 100 by the yield e.g. take the one bedroom apartment in Dublin 1 with a monthly rental of €1,141 multiply by 12 to give €13,692.

It has a yield of 8.7% which gives a multiplier of 100/8.7 = 11.49. This will then give a property price of …

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