Question 1
Joel is weighing whether to keep letting the unit or to sell into a rising market, and as a first step wants the plain gross yield his rent represents against what he originally paid, before any costs are considered. Mr Joel Sim bought an apartment for $800,000 three years ago and has just let it at $2,500 a month. The unit is now valued at $960,000.
The gross rental yield on the purchase price is ______.
Show the answer and full explanation
Answer: B
The rule. Gross rental yield = annual rent ÷ purchase price × 100%.
Why B is correct. ($2,500 × 12) ÷ $800,000 = $30,000 ÷ $800,000 = 3.75%.
The other options.
- A (3.13%) divides by the current $960,000 value, not the purchase price.
- C (0.31%) uses the monthly rent instead of the annual rent.
- D (4.50%) uses a $3,000 monthly rent.
Exam note. Gross yield is on the purchase price unless the question says otherwise — annualise the rent first.