Investment report explained
Investment Report
Performance matrix of property as an asset class
The 2 main performance indicators that are detailed on the Investment report, on an annual basis are:
1. Yield
2. Capital growth
1. Yield:
Formula: Net Operating Income* / Cost of Investment**
Rental yield is the organic return generated on a property through net operating income. It is a percentage figure and is calculated by taking the annual Net Operating Income (NOI) of a property and dividing it by the total amount that has been invested in that property, i.e. the cost of investment.
Net Operating Income*:
Formula: [Annual rental income – Annual operating expenses]
Net operating income is based on how the categories have been set on each respective account.
Recoveries will be included in this computation, noting that the return items (rows) are generated from payment instructions:
- Rent & payments made from rent
- Payments recovered to the landlord income due account
- Landlord expenses paid from rent
- Landlord expenses paid from the landlord wallet
In addition to the above, the NOI section has been made customisable in cases where landlords pay expenses from their rental income outside of the WeconnectU system, giving them an opportunity to make the report more accurate.
Cost of Investment**:
Components of cost of investment:
- Purchase price of the property
- Transfer costs
- Upfront maintenance
- Other costs
All the components that are listed above are amendable by the Investor (landlord). The purchase price of the property is a compulsory field and will return the purchase information as indicated on the respective asset.
2. Capital Growth:
Formula: [Current valuation – purchase price] / purchase price
Capital growth is simply the increase in value of an investment over time, ie. The increase in a property’s value over time. This return will be generated over the life of the property investment, indicating how the investor’s asset has performed since acquisition.
All valuations that you have on record should be added to the system, as these will be plotted on the capital growth curve.
Example of the calculations:
1. Capital Growth calculation:
A property was purchased on 12 April 2007 at a price of R800 000.00
Subsequent valuations are as follows:
1 June 2012 - R1000 000.00 4 May 2015 - R1050 000.00 1 Dec 2020 - R1200 000.00
Where the Capital Growth will be calculated from acquisition to the most current valuation, ie: [1200 000 - 800 000] / 800 000 = 50% , where the capital growth value = R400 000.00
2. Yield Calculation:
The yield as it stands before any amendments will be based on the purchase price, which will be illustrated in example 2.1 The Investor then has the ability to amend the cost of investment, which will then automatically update, based on the amounts inputted in the cost of investment table. This will be illustrated in example 2.2
2.1 Cost of investment = purchase price
(No cost of investment components filled in)
2.2 Cost of investment = purchase price + property transfer fees + bond registration + upfront maintenance
(Cost of investment components filled in)
See below the Net Operating Income Table:
Please note, the NOI table is payment-based and not invoicing-based. In this report, categories and payments go hand in hand.
2.1 Net Operating Income = [69600 / 800000] = 11.49%
2.2 Net Operating Income = [69600 / 980000] = 7.10%