In a previous entry I went over how I compare dividends to rent. Yield on cost is another popular dividend investor metric and when we try to compare dividend yoc with rental property yoc? It gets crazier then yield. So much in fact I felt it warranted its own entry.
Yield on cost is how much income you are currently getting based upon what you paid for the asset. The income changes with raises and cuts to the dividend but how much you paid stays the same. How much did you pay per share? Real estate can have a lot of complications for yield on cost. However I still want to calculate it so I can compare my property to my investments. Then I can better figure out which is doing better and help determine where future purchases will go to.
First off is how much have we paid for the property. If its paid for in cash its pretty straight forward but if its through a loan then we cannot be sure how much we have paid until its paid off. At the time of this posting, every $1 extra I spend on my mortgage saves me $3 by preventing extra interest payments. As time goes on that savings will drop as more and more of my primary payment is going to principal and less to interest. The total amount paid into a property will fluctuate over time. Personally I am using a close guess on my spreadsheet but I won't know the true number for years.
Yield on cost as the same problem yield has, what exactly is considered income? There are very specific laws in calculating rental income but for a personal stat like yield on cost, we have a few options.
So what is my yield on cost?
On my spreadsheet I list Gross YoC. This is gross rent with an estimated total amount paid. I want to look at this because I can control some of my costs. My HOA fee may go up, I might get more or less insurance, I could manage the property myself and cut out the management fee. This is my maximum yield I could get.
I also have Net YoC representing the profit after fees of the property. This Net YoC excludes having a mortgage. This portfolio is for me to quit my day job with which will take years, at least another 12. I hope to have my mortgage paid off at about that time.
Rent vs Dividend stock comparison
My dividend stocks average a 5.31% yield, 7.1% YoC, and a 15.2% growth rate.
My rental property will have an 8.03% yield, 3.41% - 5.98% YoC, and a 5% estimated growth rate in rent.
To be honest, they seem fairly close to me and given the fact I am so far underwater with the loan currently, selling it is not an option.
My best option is to make tactical decisions of where to place my money as it comes up each deposit day.
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
Yield on cost is how much income you are currently getting based upon what you paid for the asset. The income changes with raises and cuts to the dividend but how much you paid stays the same. How much did you pay per share? Real estate can have a lot of complications for yield on cost. However I still want to calculate it so I can compare my property to my investments. Then I can better figure out which is doing better and help determine where future purchases will go to.
First off is how much have we paid for the property. If its paid for in cash its pretty straight forward but if its through a loan then we cannot be sure how much we have paid until its paid off. At the time of this posting, every $1 extra I spend on my mortgage saves me $3 by preventing extra interest payments. As time goes on that savings will drop as more and more of my primary payment is going to principal and less to interest. The total amount paid into a property will fluctuate over time. Personally I am using a close guess on my spreadsheet but I won't know the true number for years.
Yield on cost as the same problem yield has, what exactly is considered income? There are very specific laws in calculating rental income but for a personal stat like yield on cost, we have a few options.
So what is my yield on cost?
On my spreadsheet I list Gross YoC. This is gross rent with an estimated total amount paid. I want to look at this because I can control some of my costs. My HOA fee may go up, I might get more or less insurance, I could manage the property myself and cut out the management fee. This is my maximum yield I could get.
I also have Net YoC representing the profit after fees of the property. This Net YoC excludes having a mortgage. This portfolio is for me to quit my day job with which will take years, at least another 12. I hope to have my mortgage paid off at about that time.
Rent vs Dividend stock comparison
My dividend stocks average a 5.31% yield, 7.1% YoC, and a 15.2% growth rate.
My rental property will have an 8.03% yield, 3.41% - 5.98% YoC, and a 5% estimated growth rate in rent.
To be honest, they seem fairly close to me and given the fact I am so far underwater with the loan currently, selling it is not an option.
My best option is to make tactical decisions of where to place my money as it comes up each deposit day.
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
I enjoy your posts regarding investment properties. I understand that they are not the most exciting investments though. You can view the stock markets daily and see the value fluctuations, but when it comes to real estate you can go months with nothing going on.
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