What Does NIY mean in property investing?
NIY is an abbreviation often used in property investing circles, its stands for Net Initial Yield.
It is the current annual income a property generates, minus any costs and expressed as a percentage of the property value.
This can effect what property finance might be available on a given property investment.
NIY Net Initial Yield Example
Property Purchase Price: £1m
Annual Rent and Service Fees: £90,000
Associated Costs: £10,000
Net Income: £80,000
NIY: 8%
Why Net Initial Yield Matters When You Are Borrowing
On a commercial investment the yield is how a lender sanity checks two things at once: whether the valuation is realistic, and whether the rent covers the debt. A low yield means you are paying a lot for the income, so the same size of loan is supported by less rent and the interest cover calculation tightens.
Lenders test this with an interest cover ratio, and on keenly priced low yielding buildings it frequently caps the loan before loan to value does. In other words the rent, not the value, becomes the constraint. On higher yielding secondary property the reverse is true and loan to value binds first.
Our commercial mortgage broker page sets out lender appetite and typical loan to value by property type, including how let investments are assessed differently from owner occupied premises.
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