Rental Property Yield Calculator
How to Calculate Rental Yield for Real Estate
Rental yield is the primary metric used by real estate investors to evaluate the potential return on a property investment. Unlike total return, which includes capital gains, rental yield focuses specifically on the cash flow generated relative to the property's cost.
Understanding Gross vs. Net Yield
Gross Rental Yield is the simplest calculation. It is the total annual rent received divided by the property's purchase price. For example, if you buy a home for $300,000 and rent it for $2,000 per month ($24,000/year), your gross yield is 8%.
Net Rental Yield is a more accurate measure of profitability. It takes into account the costs associated with owning the property, such as:
- Property taxes and insurance
- Maintenance and repair costs
- Property management fees
- Vacancy periods (the time the property sits empty)
Example Calculation
Suppose you purchase a condo for $500,000. You rent it for $3,000 per month. Your annual expenses (taxes, HOA, repairs) total $7,000, and you expect a 5% vacancy rate.
- Gross Annual Income: $3,000 × 12 = $36,000
- Vacancy Loss: $36,000 × 0.05 = $1,800
- Effective Income: $36,000 – $1,800 = $34,200
- Net Annual Income: $34,200 – $7,000 = $27,200
- Net Yield: ($27,200 / $500,000) × 100 = 5.44%
What is a "Good" Rental Yield?
While "good" is subjective and depends on the location, most seasoned investors aim for a net yield between 5% and 8%. In high-demand metropolitan areas, yields may be lower (2-4%) because investors rely more on property value appreciation. In regional or lower-cost areas, yields might exceed 10% to compensate for slower capital growth.