How to calculate net rental yield
Rental Yield Calculation
How to calculate net rental yield return from your rental property?
Experienced property investors use rental yield as an indicative measure of a property profitability.
When you consider an investment property, your purchase factors or influencers can be different – some investors buy a location, others buy views yet if we make the investment decision to be based on pure mathematics rental yield return shows what to buy and what not to buy.
Better if you can compare a few properties in one go yield as an indicator tends to “open” investors eyes.
Current bank interest returns vs rental yield can help you to see the transaction from a business point of view.
HOW DO YOU CALCULATE YOUR RENTAL NET YIELD RETURN?
A Tanah Merah house rental yield calculation.
Purchase Price: $435,000
Weekly Rent: $410 X 52 weeks
Gross Total Rent: $21,320
Refurbishment $20,000
Less Expenses:
$5,500 (Maintenance, Home insurance, Council fees, property management fees, cleaning)
Net Rent: $15,820
$15,820 / $455,000 X 100 Net rental yield return = 3,47%
Gold Coast apartment rental yield calculation:
Purchase Price: $350,000
Weekly Rent: $450 X 52 weeks
Gross Total Rent: $23,400
Less Expenses:
Body Corporate Fees 125 X 52 = $6,500
$2,000 (Maintenance, landlord insurance, a local council fees) here you can find all Logan City Council fees.
Net Rent: $14,900
$14,900/350,000 X 100 = 4,26%
It is recommendable to analyse each investment property with a few assumptions taking into consideration: cash flow, capital growth, a suburb quality- from a median income point of view or amenities- something that attracts quality tenants.
Additional factors to take into the equation:
Capital growth – a good example Logan City – many homeowners – those ones who have purchased their properties 20 or even 30 years ago enjoyed capital growth. The point here is – your property can provide a very low rental return yet high capital growth. Keep in mind you have to sell or borrow against a property if you want to see the money.
Allow for a vacancy factor. This one is huge and many property investors can be quite naïve about a vacancy factor thinking that their property will never be vacant. Typically your financial institution would use 75% of your rental income to compensate a vacancy factor in order to create a very conservative approach. For instance, your rental income is:
$200 X 52 = $10,400 X 75% = $7800
Depreciation is another expense which should be taken into account with your rental property. Talk to your accountant about a depreciation schedule. Depreciation can change due to taxation rules.
Take property management fees into consideration. In the long run, it is better to establish a good relationship with your property managers. You might want to check how much property managers charge in your market. On the Gold Coast, it is pretty standard nowadays to pay as much as 8,8% For more information about property management service provided by our team check this page.
Always discuss your investment intentions with your financial adviser, she or he might recommend to you a different perspective on your investments. Keep in mind as we get older our risk attitude changes it is advisable to check your risk profile from time to time.