Calculate rental yield

If you are buying property as investment, besides projected capital appreciation, you need to understand how to calculate rental yield. As an investor, you must find invest into higher rental yield/return on investment property.

Calculate rental yield

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 nett rental yield.

Calculate rental yield when buying property with full cash

Example 1 (property A):

Property 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%

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

Example 2 (property B):

Property 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%

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

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

Calculate rental yield when buying property with loan

Using back the example above, now we are taking 70% loan. You need to calculate rental yield using your cash outlay instead of the full property price

Example 1 (property A):

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

Cash outlay 30% = USD 60,000

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

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

Example 2 (property B):

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

Cash outlay 30% = USD 75,000

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

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

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

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