In real estate, what does yield indicate?

Yield in real estate primarily refers to the annual return on an investment. It is a financial metric that investors use to assess the performance of an investment property, providing a sense of how much income is being generated relative to the amount invested. Yield is typically expressed as a percentage and can be calculated by taking the property's net operating income (NOI) and dividing it by the property's purchase price or value. This calculation helps investors compare different investment opportunities or evaluate how well a property is performing over time.

For instance, if an investor purchases a property for $200,000 and the net operating income is $20,000, the yield would be 10%. This figure helps investors understand the potential profitability and inform any decisions regarding property management or future investments. Understanding yield is crucial for effective real estate investment strategy, as it directly relates to the return on capital employed in acquiring or holding a property.