When investing in property, there’s nothing more important than knowing how to calculate and understand your rental yield. The rental yield calculator not only helps you assess how it shapes up in comparison to other investments around your area, but it also shows which ones are worth investing in at the end of the day.
If you want to make sure that your investments aren’t a waste of time, here’s everything you need to understand about the rental yield of your investments!
What is a Rental Yield?
If you don’t already know, the rental yield is the amount of money you’re making by comparing the gap between your overall costs of running the property and the income you receive from renting out the property. Calculating the rental yield for an investment helps you understand the return that you will earn from an investment!
It’s crucial to invest in a property that’s going to produce high rental yields. Having a property that hovers around a 5-8% rental yield is an acceptable investment to keep.
Knowing your property’s rental yield also makes it possible for you to make comparisons to see whether you’re on the right track or if you can get an even higher rental yield by investing in a different property.
How to Calculate your Rental Yield
There are two types of rental yield, and each one differs in the way in which you calculate them. You can calculate the gross yield through the annual rental income and the value of the property. To find the net yield, you have to determine it by including all of the expenses involved in the property.
Calculating the Gross Rental Yield
To calculate the gross rental yield, you have to divide the annual rental income by the value of the property itself and then multiply it by 100 in the end. You can use the value that you bought the property for as the property value, or you could also use its current market value!
To put it short, the equation to find the gross rental yield is annual rent ÷ the property value x 100. Here’s an example:
If your property has an annual rent of $30,000 and the property value is $500,000, your gross rental yield will look something like this: $30,000 ÷ $500,000 x 100 = 6%
Calculating the Net Rental Yield
Running a rental yield calculator for your net rental yield might give you a clearer understanding of the income return you’re getting from your investment. To calculate this, you have to factor in all of your expenses related to the property, such as insurance, repair costs, legal costs, etc.
The equation looks like this: [(Annual rental income – annual expenses) / total property cost] x 100
Here’s an example:
If you have an annual rent of $25,000, an annual expense of $5,000, and the property value is $750,000, that means your net rental yield is 2.67%
[($25,000 – $5,000) / $750,000] x 100 = 2.67%
Understanding what rental yield is and how rental yield calculators are crucial to your investments is the difference between making a profit and eventually going broke. Make sure you invest your money wisely and calculate in the future with accuracy!