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How To Calculate Rental Yield?

By Sandy Naidu | May 12, 2008







The rental yield is used to compare properties and ascertain which one is better. Currently in most parts of Australia the rental yields are on the rise. Lets start at the definition of a rental yield and then move into a bit of analysis of the term.



How Do You Calculate Gross Rental Yield



It is the annual rental return relative to the purchase price of the property. The formula is -

(Weekly Rent * 52) * 100
—————————-
Purchase Price

calculate Rental Yield The answer from the above formula is called the ‘gross rental yield’.



Generally when the property prices are rising, the rental yields are falling.




Can We Use Rental Yields To Compare Properties?



Yes, you can… You can compare two properties based on their rental yield. Having said that gross rental yields alone is not enough in making your investment decision. The gross rental yield does not consider the costs of maintaining the property. A better indicator of comparison is the ‘net rental yield’.

Add the following individual annual costs to get the total annual costs:

  • Strata Fees
  • Water Bills (add an approx figure if you are not aware of this)
  • Agent Fees
  • Council Rates
  • Repairs (add an approx figure if you are not aware of this)
  • Any Other Costs

Subtract the total annual costs from the annual rent. This gives you annual rent after all annual costs.

And so the new formula for rental yield is -

[(Weekly Rent * 52) - Total Annual Costs]* 100
—————————————————-
Purchase Price

I prefer to use this figure to compare the properties….Ofcourse we then have depreciation etc that we can claim…Thats a topic for another day…But the net rental yield (without taking depreciation) is probably a good start to comparing the properties…Once you narrow your properties’ selection you can then use your depreciation figures and find out the exact return.

You can also use this net return yield and compare the property against your other investment options (shares, cash rates etc)



Use my free online Rental Yield Calculator



Related Posts:

Topics: Financial Definitions, Property |

4 Responses to “How To Calculate Rental Yield?”


  1. Dzuljastri Says:
    July 27th, 2008 at 12:36 pm

    Dear Sir,

    I am doing a research on the computation for rental yield. Could you let me know the source
    where the below formula is obtained as I need to
    put it as reference to my thesis

    Weekly Rent * 52) * 100
    —————————-
    Purchase Price

    Thank you very much for your assistance, Dzul

  2. Sandy Naidu Says:
    July 28th, 2008 at 8:52 pm

    Hello Dzuljastri,

    This is a very well known formula…This formula is mentioned in all textbooks which talks about property as an investment vehicle. Good luck with your thesis.

  3. Steve G Says:
    August 4th, 2008 at 5:25 am

    With regard to Net Rental Yield

    Should I include interest in the expenses ??

    When I do I end up with a NRY of Minus 2.374%

    Does this mean that I am going out the back door ??

  4. Sandy Naidu Says:
    August 4th, 2008 at 9:02 am

    Hello Steve,

    When I am comparing two properties I don’t use interest expenses if the loan amount is the same for both properties. Sometimes to get a more accurate picture, I include interest expenses. In such cases you add the interest expenses and subtract the deductions you get from the tax office for your interest payments to get your net interest expenses…Don’t forget the tax deductions…

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