Calculating rental yield on an investment property involves determining the annual rental income, deducting expenses, and comparing the gross and net yields. By understanding the potential return on investment, you can make informed decisions about residential investment properties.
Here’s a simplified guide to help you calculate the yield:
1. Determine the Annual Rental Income:
Let’s say the weekly rent for the property is $400. Multiply this by 52 (weeks in a year) to obtain the annual rental income: $400 x 52 = $20,800.
2. Calculate the Gross Yield:
Suppose the property’s market value is $400,000. Divide the annual rental income ($20,800) by the property value ($400,000) and multiply by 100 to express it as a percentage: ($20,800 / $400,000) x 100 = 5.2%.
3. Consider Expenses:
Account for property-related expenses. For example, let’s assume the total annual expenses amount to $5,000.
4. Calculate the Net Yield:
Deduct the total annual expenses ($5,000) from the annual rental income ($20,800) to obtain the net rental income: $20,800 – $5,000 = $15,800. Divide the net rental income by the property value ($400,000) and multiply by 100: ($15,800 / $400,000) x 100 = 3.95%.
5. Analyze and Compare:
In this example, the gross yield is 5.2%, while the net yield is 3.95%. Analyzing these figures and comparing them with other properties or industry averages will help evaluate the investment potential.
If you prefer to save time on the calculations you may like to favourite an online calculator tool to speed things up. Remember, yield calculations are just one aspect to consider when assessing an investment property. Conduct comprehensive research, evaluate market conditions, location, and potential for capital growth, and consider seeking professional advice to make informed investment decisions.