Rental yield

What is rental yield?

The purchase of an investment property is ultimately a form of capital investment. As with any investment, a key factor is how economical or profitable the investment is.

The rental yield of a property is the ratio between the and the rental income generated by the property and the investment amount, i.e. the purchase price of the property. The rental yield is used by investors during a purchase to compare different properties with each other. The rental yield is usually expressed as a percentage. A higher rental yield means the property is expected to generate more money relative to its acquisition cost.

How to calculate rental yield?

To calculate the gross rental yield of a property, divide the gross annual rent by the purchase price: Gross rental yield (in %) = (gross annual rent / purchase price) * 100.

To calculate the net rental yield of a property, divide the net rental income (gross rents minus management costs) by the total purchase costs (purchase price plus closing costs): Net rental yield (in %) = [(gross annual rent - management costs) / (purchase price + incidental purchase costs)] * 100

The net rental yield is usually more meaningful than the gross rental yield, as it takes more actual costs into account that are ignored when calculating the gross rental yield. However, real estate ads often mention only the gross yield because of its larger value.