Work out a Rental Yield
Rental yields are used to compare various income-producing properties. Rental yields also signify the rate of return from an investment. Often you will see rental-yield figures and analysis performed by real estate agents and rental property sellers. Here are some tips on how to calculate and work out gross and net rental yields to help you choose property investments.
Steps
- Calculate your total property costs.
- Add up the property purchase price, stamp duty (if applicable), renovation costs, closing fees, and any other property fees you may have.
- Calculate the gross rental yield.
- Take the amount of annual rent collected and divide it by the total cost of the property. Multiply by 100 to get the percentage of gross rental yield.
- Calculate the net rental yield. The net rental yield will help you determine whether or not the property is a smart investment. If calculations show you are paying too much for the property, you can re-evaluate your investment decision.
- Calculate your annual expenses by adding up a year's worth of property repair costs, property taxes, landlord insurance, agent fees and hiring costs.
- To calculate the net rental yield, subtract annual expenses from annual rent and divide this result by the total cost of the property. The result should be multiplied by 100 for the net rental-yield percentage.
- Knowing the net rental yield helps you plan ahead, because it provides insight on how much money to set aside for property upkeep and other expenses.
Tips
- Work out rental yield on your property regularly. The best way to stay on top of your investment is to calculate rental-yield figures on a yearly basis and compare your numbers to those of other properties.
- Keep in mind that your overall return is influenced by any tax relief you may be eligible for and also any increase in your property's value.
- When performing rental-property investment analysis, use the net rental yield formula. The net rental yield is more accurate, because it takes into account the property's operating expenses.
- Properties typically have a gross rental yield between three and eight percent, depending on locale.
- The best investment choice will usually be the property with the higher rental yield, because it will give you a higher return on your investment.
- Figuring your rental yield on a regular basis will help you determine the best time to sell a property. Owners will normally hold property for at least five years before selling it. This is usually ample time to realize capital gains.
- There are a number of rental-yield calculators available online, which you can use to check your figures.
Things You'll Need
- Calculator
- Property expense records
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