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Are You Calculating Rental Yield Correctly?

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Are You Calculating Rental Yield Correctly?

If you’re new to investing in property, there’s probably a lot of information flying at you about which area to invest in, which strategy to use, what buyers are the best and how to flip properties. Well. The list goes on.

One thing that is really critical to get right at the beginning is rental yield, and it’s something we see our clients calculate incorrectly all the time. 

But don’t stress! We are here to show you how to calculate it based on two commonly used formulas and you’ll be surprised just how easy it is to calculate. 

But firstly. Let’s get on the same page about what “rental yield” really is.

 

What is rental yield?

Rental yield is a percentage that is used to express how profitable a property would be or currently is. It’s based on annual earnings, giving you a long term view on the feasibility of making an investment property work within the bounds of your budget and goals. 

How to Calculate Rental Yield

How to calculate rental yield

 

Different Kinds of Rental Yield

Some people get stuck calculating rental yield because there are two additional kinds which may impact your end result.

Gross Rental Yield: This calculation considers only the rental income relative to the property’s total value or cost. It does not take into account other expenses associated with property ownership, such as property management fees, maintenance costs, property taxes, and insurance.

How to calculate gross rental yield

Net Rental Yield: This calculation considers the net income from the property after deducting all associated expenses. The formula is:

How to calculate net rental yield

Our Cashflow Calculator

True to the PropHero way, we’ve done the hard work for you and have put together an easy to use spreadsheet that will calculate the rental yield for multiple properties in this cashflow calculator. Download it now to analyse the feasibility of investing in your next property.

Want to learn more about investing in property this year. Book in time with our team for a complimentary discovery session here. We’ll take you through the PropHero process and why we outperform the market both in capital growth and rental yield. 

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