Rental Yield Calculator
Calculate your gross and net return on investment for any rental property.
Understanding Rental Yield: A Guide for Real Estate Investors
For real estate investors, calculating the rental yield is a fundamental step in evaluating the potential profitability of a property. Unlike capital growth, which focuses on the increase in property value over time, rental yield measures the annual income generated by the property relative to its purchase price.
What is Gross Rental Yield?
Gross rental yield is the simplest calculation. It is the total annual rent divided by the property purchase price, expressed as a percentage. It does not account for any expenses such as maintenance, taxes, or management fees. It is a great "quick check" metric to compare different properties in the same neighborhood.
Example: If you purchase a condo for $300,000 and rent it out for $2,000 per month, your annual income is $24,000. Your gross yield would be 8% ($24,000 / $300,000).
What is Net Rental Yield?
Net rental yield is a more accurate representation of your actual return on investment. It subtracts annual operating expenses—such as property taxes, insurance, repairs, strata fees, and vacancy allowances—from the annual rent before dividing by the property price.
Using the example above, if that $300,000 condo costs $5,000 a year in expenses, your net income is $19,000. This results in a net yield of 6.33% ($19,000 / $300,000).
How to Use This Calculator
- Property Purchase Price: Enter the total cost of buying the property, including closing costs or initial renovations if you want a "total cost" yield.
- Expected Monthly Rent: Enter the realistic monthly market rent for the area.
- Annual Operating Expenses: Include everything: property management fees (usually 8-12%), property taxes, insurance premiums, and a 5% buffer for repairs.
What is a "Good" Rental Yield?
A "good" yield depends heavily on the location and asset type. In major metropolitan areas (like New York or London), yields are often lower (2% to 4%) because investors bank on high capital appreciation. In regional areas or emerging markets, investors typically look for higher yields (6% to 10%) to compensate for lower potential capital gains and higher perceived risk.
Key Factors That Affect Your Yield
- Location: Proximity to transit, schools, and employment hubs increases demand and rent.
- Property Condition: Newer properties often have lower maintenance costs, resulting in a healthier net yield.
- Interest Rates: While interest rates don't change the yield of the property itself, they change your personal "Cash-on-Cash" return if you are financing the deal.
- Vacancy Rates: High turnover or long periods without tenants can significantly lower your actual annual income.
Conclusion
Successful property investment requires a balance between yield and growth. By using our Rental Yield Calculator regularly during your property search, you can strip away the emotion of a purchase and focus on the hard data that ensures a sustainable, cash-flowing portfolio.