I have to let you know I read Duncan Bannatyne’s autobiography the other day (the Scottish guy from Dragon’s Den) and was quite moved. I initially bought the book because I thought it was a book that will teach me how to make an extra few million or so but it was an actual autobiography. It was about the person himself rather than a guide on how to make a fortune. I’d forgotten how interesting people’s lives can be. I soon lost interest in the business aspect of it all and how he made it and ended up wondering why did he leave his first wife and marry the second!
But anyway what I did learn from Duncan’s book was that he set himself a yield criteria. His was a 25 to 33%yield on the amount of money he invested plus what he borrowed. So in effect it was a gross yield calculation.
What I have learned from Duncan and confirmed in what I tell myself is that you must have a threshold yield calculation and stick to it. Duncan’s 25%, mine’s 10% and yours is……?
If the number didn’t roll off the tongue then you should be worried. I want you to know this figure so its second nature. Yield is calculated as the annual rent expressed as a percentage of the purchase price. So in my example a 10% yield means that if something is for sale at £100,000 then I would want at least £10,000 annual rent from it giving me my 10% yield.
I can see that its so important to have this threshold as all the successful people have had these so its easy to come to a decision on whether to buy or not to buy. I hope that you will follow suit.
All the best.
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Posted on: 26th Feb 2008