Rental Yield Calculator
Determine the profitability of your real estate investment instantly.
Understanding Rental Yield for Property Investing
Rental yield is a critical metric for real estate investors. It represents the annual return on investment from rental income, expressed as a percentage of the property's value. Unlike capital gains, which focus on the increase in property value over time, rental yield focuses on the immediate cash flow generated by the asset.
Gross Yield vs. Net Yield
Gross Rental Yield is the simplest calculation. It is calculated by taking the total annual rent and dividing it by the purchase price of the property. While useful for a quick comparison, it doesn't account for the costs of owning the property.
Net Rental Yield is a more accurate measure of profitability. It takes the annual rental income, subtracts all annual expenses (such as property taxes, insurance, maintenance, and management fees), and divides that figure by the total property cost (including closing costs and renovations).
Real-World Example
Imagine you purchase a property for $400,000 with $10,000 in closing costs (Total Investment: $410,000). You rent it out for $2,500 per month ($30,000 per year). Your annual expenses for taxes and repairs are $5,000.
- Gross Yield: ($30,000 / $400,000) × 100 = 7.5%
- Net Yield: (($30,000 – $5,000) / $410,000) × 100 = 6.1%
What is a "Good" Rental Yield?
Generally, a yield of 5-8% is considered healthy in most markets. However, this varies significantly by location. High-growth city centers might have lower yields (2-4%) but higher potential for capital appreciation, while regional areas might offer higher yields (8%+) but slower value growth.