Property Rental Yield Calculation

If you are buying property as an investment, you need to understand how to calculate your rental yield as an investor before you buy your property. 

Rental yield is calculated based on the annual rental income divided by total amount of cash outlay. Do note that you need to minus off all the cost to get the net rental yield.

 

 

Guide for Rental Yield Calculation

 

Calculate rental yield when you buying property with full cash

Property 1:

Purchase Price: USD 200,000, gross rental: USD 1,000/month, other cost (maintenance, agent fee, etc): USD250/month

Gross rental yield = 1000 * 12/200,000 = 6%

Net rental yield = (1000 - 250) * 12/200,000 = 4.5%

 

Property 2:

Purchase Price: USD 250,000, gross rental: USD 1,500/month, other cost (maintenance, agent fee, etc): USD 500/month

Gross rental yield = 1500 * 12 / 250,000 = 7.2%

Net rental yield = (1500 - 500) * 12/250,000 = 4.8%

 

Based on the 2 example above, property 2 is a better investment because it offers higher net rental yield compare to property 1.

 

Calculate rental yield when buying property with loan

Assumptions, we are taking 70% loan. Calculate rental yield using your cash outlay instead of the full property price

 

Property 1:

Purchase Price: USD 200,000, gross rental: USD 1,000/month, other cost (maintenance, agent fee, etc): USD250/month, interest: USD 100/month

Cash outlay 30% = USD 60,000

Gross rental yield = 1000 * 12/60,000 = 20%

Net rental yield = (1000 - 350) * 12/60,000 = 13%

 

Property 2 :

Purchase Price: USD 250,000, gross rental: USD 1,500/month, other cost (maintenance, agent fee, etc): USD 500/month, interest: USD 250/month

Cash outlay 30% = USD 75,000

Gross rental yield = 1500 * 12 / 75,000 = 24%

Net rental yield = (1500 - 750) * 12/75,000 = 12%

 

Based on the 2 example above, property 1 is a better investment because it offers higher net rental yield compare to property 2.