Free Rental Yield Calculator

What is Rental Yield?

Rental yield allows you to quickly calculate how much money your investment property produces per year as a percentage of its value. If you want to know how much income your property will generate in a given year, this is the calculation to use. There are multiple rental yield calculations that you can perform, which include gross yield and net yield. 

When to Use Rental Yield?

Rental yield should be used as a screening calculation when evaluating properties, meaning it isn't your final deciding factor. Instead, it helps you quickly see whether an investment property is worth buying. The other factors to consider include property taxes, the local job market, the number of vacancies in the area, and cash flow potential.

Before making this calculation, set a target rental yield. If the calculation falls below the target you've set, you should move on to another property immediately. 

Rental Yield Formulas

There are two types of rental yield calculations you can make when you're thinking of investing in a rental property. Gross rental yield is an easier calculation to do. You don't need to consider your property's expenses, which means that you can do the calculation in just a couple of minutes. Net rental yield considers all the expenses you pay in order to maintain the property, which should result in a more precise calculation. However, it's more complex. Take your time to make sure you get the math right.

Gross Rental Yield

Gross rental yield is the property's annual rental income divided by its value. If you're looking for a quick and easy calculation that will inform you of how valuable a rental investment can be, gross rental yield is right for you. The formula is simple: 

Formula: Annual Revenue / Property Value = Gross Yield

Gross Yield Example

Let's say you have a property worth $250,000 that rents for around $1,250 per month. You'll first take $1,250 and multiply it by 12, which represents the number of months in the year. You'll end up with $15,000 in yearly rent revenue. You must then divide $15,000 by the property's value of $250,000, which results in 0.06, or 6%. This means that the property's gross rental yield is 6%. While there are numerous factors to consider, a 6% rental yield is around average. 

Net Rental Yield

To obtain a more accurate measurement, you need to calculate your net rental yield, which is often referred to as the rate of return. The formula for net rental yield is as follows:

Formula: Net operating income (NOI) / Property Value = Net Yield

Your rental property expenses can include vacancy costs, insurance, taxes, repairs, and anything else you spend to maintain the building. However, you shouldn't include your mortgage payments in these calculations. They aren't considered expenses. 

The four values used to calculate net rental yield include property value, annual rent, annual expenses, and vacancy rate. The vacancy rate is the amount of time you expect the building to be vacant. Your net operating income comes from subtracting your expenses and vacancy from your collected rent. 

Net Yield Example

Let's use the same property numbers in this calculation, which means $1,250 per month in rent and $250,000 in property value. Now, assume this rental comes with $700 per month in operating expenses. When calculating net operating income, we would subtract $700 from $1,250, which results in $550. When you multiply $550 x 12, you'll notice that your net operating income is $6,600. 

Once you obtain the net operating income, divide it by the price of the property:

$6,600/$250,000 = 2.64% Net Rental Yield 

This means that you're receiving a return of 2.64% of the property's total purchase price every year. While you're technically making a profit, it's a little too low if you want a healthy investment portfolio. 

Looking for High-ROI Investment Properties?

How to Calculate Rental Yield FAST

Buying the perfect investment property requires ample research, knowledge of the market you're investing in, and quick reflexes. Depending on how competitive the market is among buyers, you might need to react fast to make an offer that the property owner will accept. However, it's still essential that you complete all the usual calculations to make sure the property is worth investing in. 

To calculate rental yield fast, use Rent to Retirement's Rental Property Calculator, which can calculate ROI percentages, cash flow, cash-on-cash return, and more! Just enter a property's purchase price, down payment, interest rate, and expenses. Once you submit this info, you'll instantly get a full analysis of the property. 

The results of your calculation should inform your decision. If the calculator provides you with a high yield, you can have peace of mind that the property will perform well and help you improve your portfolio. 

What Is a "Good" Rental Yield?

While there's no “true” answer to this question, most investors want around an 8%-12% net yield to ensure they can beat more passive investments like index funds. If your calculations give you a net yield between 8%-12%, there's a good chance that the rental property  will perform well for you. Make sure, however, that you don't evaluate the property based on a single dimension. You shouldn't make an offer on a property just because it has a high net yield. 

If you want to add a considerable amount of value to your portfolio, consider looking for a rental with a good yield. In this scenario, you're more likely to build a positive cash flow that will help you make other investments. On the other hand, low-yield properties aren't automatically bad investments. These properties may come with less risk. 

What Influences Your Rental Yield?

There are several factors that influence your rental yield, which include the following:

• Property price: The lower the price, the higher the yield!
• Rental income: The higher the rent, the higher the yield!
• Expenses: The higher the expenses, the lower your net rental yield!

Calculate Rental Yield Before You Buy!

Calculating rental yield is essential for any investor aiming to maximize their returns. By understanding and applying the formula for rental yield, investors can make informed decisions on investment properties, ensuring their investments are profitable and sustainable. Whether you're a seasoned investor or just starting, accurately assessing rental yield allows you to compare potential properties, identify lucrative opportunities, and avoid financial pitfalls.

Did you know that Rent to Retirement offers investor loans with as little as 5% down? Schedule a free consultation today to learn about these exclusive turnkey rental offers.

Rental Yield Calculator FAQs

How Do You Calculate Rental Yield?

When you wish to calculate rental yield, you can do so with a gross or net basis calculation. The gross rental yield measurement compares your gross income to the property value. The net rental yield compares your operating income to the property value.

If your investment property has a high gross rental yield, this doesn't mean that the net rental yield will be favorable. High operating expenses can dampen any income you expect to earn from the property. If you don't want to take on too much risk, you can buy a property with a low net yield if it's new and located in a good neighborhood. Higher yields often come with more potential risk.

What Is a Good Return on Rental Property?

There's no surefire answer to this question. The ideal return on a rental depends on your circumstances as well as certain characteristics of the property. For example, the property's price, risks, and location determine what a good return is. 

However, most investors believe that a great return is around 15%. A good return rate would be something like 10%-12%. 

How Do You Calculate Rental Income?

To calculate rental income before buying a property, there are several things you must consider, the primary of which is the estimated cash flow. A higher cash flow results in better ROI. It also allows you to pay for unexpected costs and upgrade your rental property. When the cash flow is negative, you'll be losing money on your property. 

To calculate your rental income, you must first determine the property's gross income, which is usually the rent you collect every month. Make sure you factor pet fees and late fees into this calculation. Before you can calculate your rental income, you'll need to identify all the expenses related to the property, which include everything from mortgage payments and maintenance costs to vacancy rate and advertising fees. Deduct the expenses from your gross income to identify your rental income.

Armed with a comprehensive understanding of the intricacies inherent in acquiring investment property and a versatile plan in place, aspiring real estate investors can confidently set forth on their venture into real estate investment in 2024 and beyond. For deeper insights into the realm of real estate investing, visit Rent to Retirement at https://www.renttoretirement.com.