Thank you for your insights guys!
I have thought about this a bit, and I am now wondering why does it say higher
initial rental yield? Does this imply that the level of rental yield will change over the course of the contract? Is it because there will be no capital gain at the end of the leasehold contract?
Also, in terms of a formula for rental yield I have thought about it this way (not sure if its correct!!)
- Leasehold = Rent received from renting out the property to third party / Price of leasehold (i.e. Rent payable to the freeholder + any other fees/costs paid for the lease of the property)
- Freeholder = Rent received from leaseholder / Purchase price of property
So considering the above "formulae", could it maybe help to explain a change in rental yield over time.
Eg. For the freeholder the total rent received at the start of the contract is small relative to the purchase price of the property. While closer to the end of the contract, the total rent has increased compared to the fixed purchase price. So rental yield should increase over time for the freeholder?
But for the leaseholder, both the rent received and the rent payable is expected to increase over time (roughly in line with inflation). So the rental yield is initially high (compared to freehold), but could be expected to remain at the same level other over time (while rental yield on freehold increases).
Your thoughts on this would be great!
Thank you!
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