Rental Property Yield Calculator
Understanding Rental Yield for Real Estate Investing
Rental yield is one of the most critical metrics for property investors. It measures the annual return on a real estate investment based on the income generated from rent. Unlike capital growth, which focuses on the property's value increasing over time, yield focuses on the immediate cash flow potential of the asset.
Gross Yield vs. Net Yield: What's the Difference?
Gross Rental Yield is a simple calculation: (Annual Rent / Property Value) x 100. While useful for a quick comparison, it is often misleading because it doesn't account for the costs of running the property.
Net Rental Yield provides a much more accurate picture. It takes the annual rent and subtracts all expenses, including property taxes, landlord insurance, property management fees, and maintenance reserves. A property with a high gross yield but high maintenance costs might actually have a lower net yield than a cheaper property with lower overheads.
Example Calculation
Imagine you purchase a condo for $300,000. You rent it out for $1,800 per month. Your annual expenses (taxes, HOA, insurance) total $4,000.
- Annual Rent: $1,800 x 12 = $21,600
- Gross Yield: ($21,600 / $300,000) x 100 = 7.2%
- Net Income: $21,600 – $4,000 = $17,600
- Net Yield: ($17,600 / $300,000) x 100 = 5.86%
What is a "Good" Rental Yield?
A "good" yield varies significantly by location. In major metropolitan hubs like New York or London, yields might be as low as 2-3% because investors rely more on capital appreciation. In emerging secondary markets or "cash flow" towns, yields of 7-10% are more common. Generally, a net yield between 5% and 8% is considered healthy for most residential investors.