How to Calculate Rental Yield

Nick Lockhart
Nick Lockhart
January 11, 2019
Property Finance
How to Calculate Rental Yield

Rental yield helps you measure the ongoing return on your investment property or properties and can help you compare your property portfolio to other investments.

This blog shows you how to calculate the gross and net rental yields, and gives you some quick tips on how to improve them.

How to Calculate Gross Rental Yields

Gross rental yield is the annual rent as a percentage of the investment price or value of a property.

If you are researching an investment property, working out the gross rental yield can give you a quick overview of how the property is likely to perform and how it will affect your overall cash flow.

To work out the gross rental yield, you will need two figures.  The annual rental income and the property value.

Gross rental yield = (Annual rental income / Property Value) x 100

Gross Rental Yield Example

Remember that a buoyant or heated property market can mean that values rise quickly, but rental prices can stall, which will influence the gross rental yield.

Also bear in mind that gross rental yield does not take into account related expenses that you will incur by owning the property.

So a property with a high gross rental yield, but also very high expenses could actually leave you out of pocket.

How to Calculate Net Rental Yields

The net rental yield will give you a more accurate estimation on how your investment property is likely to perform.

As well as the property value and annual rental income, you will also need the actual or estimated expenses you will incur by owning the property.

Example Ongoing Property Expenses

You will need to add up all these expenses so you can work out an accurate figure for your total annual expenses.

Once you have this figure, you can work out the net rental yield using this formula

Net rental yield = ((Annual Rental Income - Annual Expenses) / Property Value) x 100

Net Rental Yield Example

Using the property example above, we could say that the annual expenses are $6,000.

Therefore the net rental yield would be

How Important is Rental Yield?

Working out the rental yield is one indicator you should look at when buying investment property.  However there are obviously other factors to bear in mind as well, such as:

Tips to Increase Rental Yield

Firstly you can look at improvements you can make to the property that will mean you can increase the rent.

For example doing some partial or complete renovations, add a second dwelling, rent out the property to multiple tenants or consider your property as a holiday dwelling.

Secondly, you can find ways to minimise expenses.

For example, buying new or off-the-plan property can potentially mean less ongoing expenses compared to older investment properties.

Alternatively, you can consider managing your investment property yourself, rather than using a management company to do it for you.

Finally, you can see whether you can negotiate with your lender for a better interest rate, or get a borrowing assessment / finance check-up with a mortgage broker who can find and compare different rates / lenders for you.

Nick Lockhart

Nick Lockhart

MRD Property Expert
Nick is the Founder of MRD. Nick is in his element when he is inspiring, mentoring and teaching safe and responsible finance and investment strategies.

Property Finance

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