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Freehold vs Leasehold yield

N

Nimisha

Member
Hi
Please explain that compared to a freehold investment,how does a leasehold investment provide a higher initial rental yield as stated in Ch9-pg15.
Thanks in advance!
 
Hi Nimisha,

You can think of it by looking at the equation of the running yield.

Rental yield = Annual rental income/Cost of property

Leasehold properties are usually cheaper than freehold properties, as such a lower cost will translate to a higher yield. The capital loss/gain on an investment is the difference between what you paid for the asset and how much you receive for it at the end (eg on sale or in this case when the lease expires). Since there is no payment to the leaseholder when the lease expires they have made a capital loss.

Hope this helps!
 
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