Rental Property Yield Calculator
Calculate your gross and net rental yields to evaluate real estate investment potential.
Understanding Rental Yield for Real Estate Investing
Rental yield is a primary metric used by real estate investors to evaluate the profitability of a property. It represents the annual return on investment expressed as a percentage of the property's purchase price or current market value.
Gross vs. Net Rental Yield
Gross Rental Yield: This is the simplest calculation. It is calculated by taking the total annual rent and dividing it by the purchase price. While useful for a quick comparison, it fails to account for the costs of owning the property.
Net Rental Yield: Often referred to as the Capitalization Rate (Cap Rate), this provides a more accurate picture of performance. It subtracts annual operating expenses (maintenance, property management, taxes, and insurance) and vacancy losses from the gross income before dividing by the purchase price.
How to Use This Calculator
To get an accurate result, follow these steps:
- Purchase Price: Enter the total cost of the property, including closing costs.
- Monthly Rent: Enter the expected market rent for the unit.
- Annual Expenses: Include property taxes, homeowners association (HOA) fees, insurance premiums, and a reserve for maintenance (typically 1% of property value).
- Vacancy Rate: Most investors use 5% to 8% to account for the time the property sits empty between tenants.
Example Calculation
If you purchase a condo for $250,000 and rent it for $1,800 per month:
- Gross Annual Income: $21,600 ($1,800 x 12)
- Gross Yield: 8.64% ($21,600 / $250,000)
- Assuming $5,000 in annual expenses: Your Net Cash Flow is $16,600.
- Net Yield: 6.64% ($16,600 / $250,000)
Generally, a net yield between 5% and 8% is considered a solid return in many stable markets, though this varies significantly by location and property type.