How to Calculate Rental Yield

Traditional or Airbnb, if you are considering investing in a Buy To Let property, you have probably already heard the term “rental yield”. And if are considering investing in a Buy To Let property, you probably want to find a one that will yield the most income. Rental yield is a tool that will make this task much easier. To find out what it is, how to calculate it, and things to look out for, take a few minutes to read this blog and learn how we, at Mashvisor, can help you figure it out.

What Is Rental Yield

Rental yield is a percentage that represents the annual income over the cost or value of an investment property. It is a measure of how much income an asset will generate compared to the asset’s cost or value. It is an indication of the rate of return from specific investment, and is a direct way to calculate return on investment (ROI). Rental yield calculations can help you decide if a property is a smart investment by assessing return potential, as well as comparing different property options.

How To Calculate Rental Yield

Before you calculate rental yield, it is important to differentiate between the two types of yield: gross rental yield, and net rental yield.

Gross rental yield requires two values, the annual rental income and the cost of the property. To calculate gross rental yield, simply divide the annual rent by the total cost (or value) and multiply by 100%.

Formula:

Gross Rental Yield = (Annual Rent* ÷ Total Cost) x 100%

For example, if a property was purchased for $250,000 and returns an annual rent of $20,000, it would have a gross rental yield of 8.0%

While calculating gross rental yield allows you to easily compare values of rental property investment options, it may not be the most accurate indicator. One property may have a high gross rental yield, yet its return may be low due to the fact that gross rental yield does not account several costs.

Net rental yield on the other hand, takes into account any extra costs (property expenses) encountered such as renovation costs, property taxes, vacancy costs, insurance costs, etc. To calculate net rental yield, subtract these extra costs from the annual rent and then divide by the total cost (or value) and multiply by 100% as follows.

Calculating net rental yield is a better measure to assess rental returns, and it helps you better understand what to better invest it.

Formula:

Net Rental Yield = ((Annual Rent – Annual Costs) ÷ Total Costs) x 100%

Using the same example above, if you had encountered annual expenses of 1200, your net rental yield would equal 7.52%

Related: Investment Property Calculator For Analyzing Real Estate Investments

How We Can Help You

Mashvisor offers several features to help you calculate rental yield. We offer comparative and predictive analysis to help you figure out a specific property’s data. Whether it is cash on cash return, cap rate, rental income and expenses, we have the projections. Our interactive investment property calculator uses predictive data and algorithms, and your own assumptions, to calculate returns (and other values) for you.

We also have a breakdown of monthly income and expenses which includes the month in which an you, as an investor, will start to break even. Moreover, our rental report will help you will understand which properties provide higher annual rents – which will in turn help you calculate and compare rental yield.

Moreover, we could also assist you in property search to make it easier for you to compare different property options. You can use our interactive map to search for and view listings and use them as comps and see how well they are performing in relation to other properties.

Not only will you not have to do any calculations, with a few clicks on your computer or tablet, you will be receiving instant comparative results, saving you both time and effort.

Related: Take A Quick Tour To See How Mashvisor Works

What Is A Good Rental Yield

Rental yield can be a subjective value. For some properties, a return yield of 6.5% is good, for others it is not. There are many factors to research and consider when buying a Buy To Let property. Do not rush into the purchase just because the rental yield is high. There is much more to the story. Sometimes, a high rental yield value may result from a cheap property (that constantly requires maintenance). In this case, the rental return may not be as high as expected due to the holding cost of this property.

While using rental yield values may help you assess investment potential, you must not depend on it solely.