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How do I calculate rental yield on my investment property?

By Greg Bell

People invest in everything from gold to stock markets. Another wise area to invest in is real estate. Investment properties are purchased with the intention of earning a return. This income can be collected either through rent from tenants, resale of the property or a combination of both. An investment property can be a home, apartment or condo you purchase and then rent out to tenants. You can also consider the home where you live an investment, as you'll ideally earn a profit on resale when you eventually move out.

Rental yield

Rental yield is the amount of money you can expect to earn as a return on your real estate investment through rental income. According to Australian Property Investor, it can be simply calculated by adding the total sum of rent you intend to collect and subtracting the initial investment from it.

This figure can be represented as a percentage, where a higher rental yield corresponds with a higher cash flow, and therefore a more desirable property. Investors use their rental yield percentage to quantify their profits and compare their properties. According to Lendi, there are two types of rental yield: gross and net.

Calculating gross and net rental yield

Gross yield is calculated using only the annual rental income and initial property value, while net yield considers all other related expenses. It can be calculated simply by dividing your annual rental income by the property value and multiplying it by 100. You can adjust this percentage based on what you originally paid for the property as well as the current market price.

Net yield factors in expenses such as insurance, vacancy and repair costs, building inspection fees, stamp duty and more. Calculate net yield by subtracting annual expenses from annual rental income and dividing it by the total cost of your property, and then multiplying that figure by 100. It's wise to monitor the housing market to make sure you can anticipate and account for a rise or fall in your rental yield.

If you are interested in purchasing an investment property in the Gold Coast region, contact Ray White Commercial to learn more about the process and get started today.

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