How do you work out rental yield?

Rental yields help you to compare between different income-producing properties. You can use rental yields to evaluate your rate of return from a particular investment. Real estate agents, as well as rental property sellers often use rental-yield figures to analyse their performance.

Rental yield can be two; they are- gross rental yield, as well as, net rental yield.

If you have a property, then the annual rental income that you receive from your property value becomes your gross rental yield. Gross rental yield doesn’t include the taxes or charges that you pay for the property’s maintenance. In simple words, it is just the face value of the money that you earn annually from a rented property.

Gross Yield

(Annual rental income or the property value) x 100

The annual rental income for a property will be monthly rent x 12.

The property value will be the purchase value of your property.

Under gross yield, your income is whatever rent you get for the whole year. Now, just because you are getting a high gross yield, in no way means that you are receiving the right rental as well. You must bring down the high maintenance cost as well to increase your profit.

Net Yield

Net yield, unlike gross yield, will want you to do your research on every type of cost that you end up paying associated with your property. Now, these costs can be anything from paying taxes, transaction costs, maintenance cost, any ongoing fees, expenses, and more.

(Annual rental income – Annual payments or the total property cost) x 100.

Why is it essential for homebuyers?

With the help of rental yield, home buyers will find it easier to understand their property value, and whether or not it will help them earn some healthy income. Through rental yield, you will be able to analyse if you have invested in a suitable property.

Posted on November 8, 2019

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