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In What is a good rental yield?, there's some discussion about whether you should calculate yield by dividing the original purchase price, or the current market price. Which is the correct definition, and when if ever are they useful?

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I think there's no correct definition, because it depends on what you want to know. If you want to know your ROI - you obviously need to look at the price paid. If you want to know if you're competitive - you need to look at the rental market, and if you want to know if the cashflow is going to be positive - you need to look at the balances.

I don't think that taking a 8% (or 10% or any other magic number) as a mark is the right thing to do. I think that your yield is good if the cashflow is positive and you're in the market range. If you need to be above the market to keep the positive cashflow - you probably don't want that investment, if you keep prices too low - while getting positive cashflow you still might be losing potential income.

Once the cashflow is positive - how much is good for you - is your decision. For some even negative cashflow may be a good thing under certain circumstances.

In the question P/E is quoted. This is price/earnings ratio, where the price is the current valuation of the property.

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