Rental Yield Calculator
Calculate the gross rental yield of a property. Rental yield is a simple measure of the annual return on investment from a property, expressed as a percentage of its purchase price.
Calculate Gross Rental Yield
Understanding Rental Yield
What is Rental Yield?
Rental yield is a percentage calculation used in real estate to estimate the income-generating potential of an investment property. It helps investors compare different properties and assess their profitability relative to the purchase price.
Gross Rental Yield Formula
The most basic calculation is the Gross Rental Yield:
Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
This formula provides a quick snapshot but does not account for ownership expenses (like taxes, insurance, maintenance, vacancies), which is why it's called "Gross".
Gross vs. Net Rental Yield
While Gross Yield is simple, Net Rental Yield provides a more realistic picture of profitability by subtracting operating expenses from the annual income before dividing by the property price.
Net Rental Income = Annual Rental Income - Annual Operating Expenses
Net Rental Yield (%) = (Net Rental Income / Property Purchase Price) * 100
This calculator focuses on the simpler, more common Gross Rental Yield.
Why Calculate Rental Yield?
- Comparison: Easily compare potential returns across different properties or locations.
- Estimation: Get a quick estimate of the potential annual return relative to the initial investment cost.
- Benchmarking: Compare the yield against other investment types (like stocks or bonds, though they have different risk profiles).
A higher yield generally indicates a potentially better return relative to the purchase price, but it's crucial to consider other factors like property appreciation, expenses, location, and market conditions.
Rental Yield Examples
Click on an example to see the calculation:
Example 1: Single-Family Home
Scenario: Buying a house to rent out.
1. Known Values: Property Purchase Price = $300,000, Monthly Rent = $1,500.
2. Calculate Annual Income: Annual Rental Income = $1,500 * 12 = $18,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($18,000 / $300,000) * 100 = 0.06 * 100
5. Result: Gross Rental Yield = 6%.
Example 2: Condo in City Center
Scenario: Investing in an apartment in a prime location.
1. Known Values: Property Purchase Price = $500,000, Monthly Rent = $2,200.
2. Calculate Annual Income: Annual Rental Income = $2,200 * 12 = $26,400.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($26,400 / $500,000) * 100 = 0.0528 * 100
5. Result: Gross Rental Yield = 5.28%.
Example 3: Property in a Town (Lower Cost)
Scenario: A less expensive property in a smaller town.
1. Known Values: Property Purchase Price = $150,000, Monthly Rent = $1,000.
2. Calculate Annual Income: Annual Rental Income = $1,000 * 12 = $12,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($12,000 / $150,000) * 100 = 0.08 * 100
5. Result: Gross Rental Yield = 8%.
Example 4: Commercial Property
Scenario: Buying a small commercial unit.
1. Known Values: Property Purchase Price = $750,000, Annual Rental Income = $50,000.
2. Calculate Annual Income: Already given as Annual Rental Income = $50,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($50,000 / $750,000) * 100 ≈ 0.0667 * 100
5. Result: Gross Rental Yield ≈ 6.67%.
Example 5: Holiday Rental Property
Scenario: Property rented out on a short-term basis (estimate annual income).
1. Known Values: Property Purchase Price = $400,000, Estimated Annual Rental Income (after platform fees etc) = $35,000.
2. Calculate Annual Income: Already estimated as Annual Rental Income = $35,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($35,000 / $400,000) * 100 = 0.0875 * 100
5. Result: Gross Rental Yield = 8.75%.
Example 6: Low-Cost Starter Home
Scenario: An affordable property often targeted by first-time investors.
1. Known Values: Property Purchase Price = $100,000, Monthly Rent = $800.
2. Calculate Annual Income: Annual Rental Income = $800 * 12 = $9,600.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($9,600 / $100,000) * 100 = 0.096 * 100
5. Result: Gross Rental Yield = 9.6%.
Example 7: Property with High Rental Demand
Scenario: Property in an area with strong rental demand relative to property values.
1. Known Values: Property Purchase Price = $280,000, Monthly Rent = $1,700.
2. Calculate Annual Income: Annual Rental Income = $1,700 * 12 = $20,400.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($20,400 / $280,000) * 100 ≈ 0.0729 * 100
5. Result: Gross Rental Yield ≈ 7.29%.
Example 8: Luxury Apartment
Scenario: A high-end property where appreciation might be a bigger factor than yield.
1. Known Values: Property Purchase Price = $1,200,000, Monthly Rent = $4,000.
2. Calculate Annual Income: Annual Rental Income = $4,000 * 12 = $48,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($48,000 / $1,200,000) * 100 = 0.04 * 100
5. Result: Gross Rental Yield = 4%.
Example 9: Student Rental Property
Scenario: Property near a university rented by the room, leading to higher per-square-foot income.
1. Known Values: Property Purchase Price = $350,000, Total Annual Rental Income from all rooms = $30,000.
2. Calculate Annual Income: Already given as Annual Rental Income = $30,000.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($30,000 / $350,000) * 100 ≈ 0.0857 * 100
5. Result: Gross Rental Yield ≈ 8.57%.
Example 10: Property Purchased Below Market
Scenario: Buying a property at a good price can boost yield.
1. Known Values: Property Purchase Price = $220,000 (below market value), Market Monthly Rent for comparable properties = $1,300.
2. Calculate Annual Income: Annual Rental Income = $1,300 * 12 = $15,600.
3. Formula: Gross Rental Yield (%) = (Annual Rental Income / Property Purchase Price) * 100
4. Calculation: Yield = ($15,600 / $220,000) * 100 ≈ 0.0709 * 100
5. Result: Gross Rental Yield ≈ 7.09%.
Frequently Asked Questions about Rental Yield
1. What is a good rental yield?
There's no single answer, as a "good" yield varies greatly depending on location, property type, and market conditions. Generally, urban areas in high-cost markets might have lower yields (3-5%) but higher appreciation potential, while properties in less expensive areas might offer higher yields (6-10%+) but potentially less appreciation. Investors also compare it to other investment returns.
2. Is Gross Rental Yield the best measure of profitability?
No, Gross Yield is a simple starting point. Net Rental Yield is a better measure because it accounts for operating expenses (property taxes, insurance, maintenance, management fees, vacancy costs, etc.). Net Yield is always lower than Gross Yield.
3. How is Annual Rental Income calculated?
It's typically calculated by taking the expected monthly rent and multiplying it by 12. If the property is vacant for periods, you might use an estimated annual income figure that accounts for vacancy.
4. Does the Property Purchase Price include closing costs?
For a basic Gross Yield calculation using this tool, you typically use the headline purchase price. For a more detailed analysis or calculating Return on Investment (ROI), you would often include closing costs, renovation costs, etc., in the total investment figure.
5. Can I use this calculator for commercial properties?
Yes, the formula works the same way. Input the purchase price of the commercial property and the total annual rental income expected.
6. How does vacancy affect rental yield?
Gross yield doesn't directly account for vacancy. If your property is vacant for two months of the year, your actual annual rental income will be lower than 12 times the monthly rent, resulting in a lower *actual* yield. Net yield calculations are better for factoring in vacancy.
7. Does mortgage cost affect rental yield?
No, rental yield (both gross and net) measures the return relative to the *property price*, not the cash invested (down payment) or the financing costs (mortgage payments, interest). Metrics like Cash-on-Cash Return are used to evaluate the return relative to the actual cash invested.
8. Why might a property with a low yield still be a good investment?
Properties with lower yields might offer higher potential for capital appreciation (the property value increasing over time), be in highly desirable or stable locations, or be part of a diversified investment strategy. Yield is just one piece of the puzzle.
9. What are typical operating expenses for a rental property?
Common expenses include property taxes, landlord insurance, property management fees (if applicable), maintenance and repairs, HOA/strata fees (if applicable), utilities (if paid by landlord), and a budget for vacancy and capital expenditures (like roof replacement). These are factored into Net Yield.
10. How can I improve my rental yield?
You can potentially improve yield by increasing rental income (renovations, market rent adjustments) or decreasing costs (more efficient management, tax strategies). Buying the property at a favorable price is also a significant factor in the initial yield.
