Rental Yield Calculator
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Understanding Rental Yield for Property Investors
Rental yield is one of the most critical metrics for real estate investors. It measures the annual return on your investment property, expressed as a percentage of the property's value or cost. Understanding the difference between Gross Yield and Net Yield is vital for making informed financial decisions.
What is Gross Rental Yield?
Gross yield is the simplest calculation. It is the annual rent divided by the property purchase price. While it's a good starting point for comparing different properties, it doesn't account for the costs associated with owning and maintaining the property.
Formula: (Annual Rent ÷ Purchase Price) x 100
What is Net Rental Yield?
Net yield provides a more accurate picture of your actual return. It factors in additional costs like purchase taxes, legal fees, maintenance, property management fees, insurance, and vacancy periods. This is the figure that truly impacts your wallet.
Formula: ((Annual Rent – Annual Expenses) ÷ (Purchase Price + Acquisition Costs)) x 100
Real-World Example
Imagine you buy a condo for $400,000 with $10,000 in closing costs. You rent it out for $2,200 per month. Your annual expenses (taxes, insurance, repairs) total $5,000.
- Total Investment: $410,000
- Annual Rent: $26,400 ($2,200 x 12)
- Gross Yield: 6.6% ($26,400 ÷ $400,000)
- Net Yield: 5.22% ($21,400 ÷ $410,000)
What is a "Good" Rental Yield?
Generally, a net yield of 5% to 8% is considered healthy in many markets. However, this varies significantly based on location. Prime city centers often have lower yields (2-4%) but higher capital growth potential, while regional areas may offer higher yields (7%+) but slower property value appreciation.