If you are investing in properties, rental yield is one of the main avenues you’ll earn an income from your initial investment. The yield is the annual profit you’ll make while renting out your property, as well as a great way of working out whether a particular property is the right investment.
So how do you calculate the rental yield on your property?
Gross Rental Yield Formula:
(Annual Rental Income/Total Property Value) X 100 = Percentage Rental Yield
For example, you purchased a property for RM500,000, which is located in a great location with amazing amenities around the property. Then, you decide to charge RM5,000 per month for rent. If you multiply this by 12 months, your annual rental income will be RM60,000. Divide your annual rental income by the total property value (RM60,000 divided by RM500,000) and times the result by 100 to get your rental yield percentage. In this instance, your gross rental yield would be 12%.
Knowing the gross rental yield gives you a good indication whether a particular property is a good investment. You will also need to find out the net rental yield as it will take costs into account.
Net Rental Yield Formula:
(Annual Profit (Income minus Costs)/ Price) X 100 = Net Rental Yield
To calculate the net rental yield, subtract annual expenses from annual rent and divide this result by the total cost of the property. The result should be multiplied by 100 to get the net rental-yield percentage. The net rental yield will be slightly lower, as this figure factors in all outgoings and expenses associated with the property. This is the eventual yield you’ll end up earning from your property.
Annual expenses can be calculated by adding up a year’s worth of property repair costs, property taxes, landlord insurance, agent fees and service charge as well as ground rent. That makes the net yield more accurate than gross yield, because it’s based on the actual amount of money you’ll end up with after factoring in costs.
Have a property you are currently eyeing or thinking of investing? Get in touch with us at [email protected] and we’ll be more than happy to assist!