Property Rental Yield & ROI Calculator
Understanding Rental Yield and ROI
For real estate investors, calculating the potential return on a property is the difference between a profitable venture and a financial burden. This calculator helps you distinguish between Gross Yield, Net Yield, and Cash-on-Cash ROI.
1. Gross Rental Yield
This is the simplest calculation. It is your annual rent divided by the purchase price of the property. While useful for a quick comparison, it doesn't account for the costs of running the property.
Formula: (Annual Rent / Purchase Price) x 100
2. Net Rental Yield
Net yield is a more accurate representation of your profit. It takes the annual rent and subtracts all operating expenses (taxes, insurance, maintenance, and fees) before dividing by the purchase price.
Formula: [(Annual Rent – Annual Expenses) / Purchase Price] x 100
3. Cash-on-Cash Return (ROI)
This metric is critical if you are looking at your total out-of-pocket costs. It factors in not just the purchase price, but also closing costs and renovation expenses. It tells you exactly how much "cash" your "cash investment" is returning each year.
Realistic Example
Imagine you buy a condo for $350,000. You spend $7,000 on legal fees and $5,000 on new flooring. Your total investment is $362,000.
- Monthly Rent: $2,100 ($25,200 annually)
- Expenses: $3,200 (Tax) + $1,200 (Insurance) + $1,800 (Mgmt) + $2,000 (Maintenance) = $8,200
- Net Operating Income: $25,200 – $8,200 = $17,000
- Net Yield: ($17,000 / $350,000) = 4.86%
- Cash-on-Cash ROI: ($17,000 / $362,000) = 4.70%
Why Use This Calculator?
Using a rental yield calculator allows you to perform "stress tests" on your investment. What happens if property taxes rise by 20%? What if you need to budget more for maintenance? By adjusting the input fields above, you can determine if a property still meets your investment criteria under various scenarios.