Rental Property Yield & ROI Calculator
Analyze your real estate investment potential with precision.
Understanding Rental Property Yield
Rental yield is a primary metric used by real estate investors to evaluate the profitability of a property. It measures the annual income generated by a property as a percentage of its value. Unlike total ROI, yield focuses specifically on the cash flow generated relative to the cost of the asset.
Gross Yield vs. Net Yield
Gross Rental Yield: This is the simplest calculation. It is your annual rent divided by the purchase price of the property. While useful for quick comparisons, it ignores expenses like taxes and maintenance.
Net Rental Yield: Also known as the Capitalization Rate (Cap Rate), this provides a more accurate picture of performance. It subtracts all operating expenses and vacancy losses from the income before dividing by the total cost of the investment (including closing and renovation costs).
Realistic Example:
- Property Price: $200,000
- Closing/Renovations: $10,000
- Monthly Rent: $1,600 ($19,200/year)
- Annual Expenses: $4,000 (Taxes, Insurance, Repairs)
- Vacancy (5%): $960
- Net Income: $14,240
- Net Yield: 6.78% ($14,240 / $210,000)
What is a "Good" Rental Yield?
A "good" yield varies significantly by location. In stable, high-demand metropolitan areas, yields of 4-5% are common due to high property values. In emerging markets or smaller towns, investors often look for 7-10% to compensate for higher perceived risks or slower appreciation potential.
How to Improve Your Yield
To increase your rental yield, you can either increase income or decrease expenses. Strategies include performing cost-effective renovations that justify higher rent, appealing property tax assessments, or implementing green energy upgrades to reduce utility costs if you include them in the rent.