What exactly does rental yield mean for commercial landlords?

By Greg Bell

As a Gold Coast commercial property landlord, return on investment is a key consideration when buying. Calculating the rental yield measures the future income potential of a property against the initial capital investment, and therefore whether or not you stand to make money or lose it.

What is commercial property rental yield?

Yield can be described as the rent-to-value rate, and describes the level of return you can expect to get from the property. It’s expressed as a percentage of the property value so you can see what your rental income looks like versus your capital investment.

Generally, the higher the yield, the better the return on your investment. However, what’s considered a good yield for an individual property varies according to a range of circumstances, such as location. Normal rental yield in one city might be significantly above average in another. Commercial rental yield in Australia can be up to 10 per cent, according to Finder, which is higher than in the residential market – this typically sits at 3 to 4 per cent.

When calculating yield, there’s two types of values you can calculate – gross and net. Gross yield looks at the annual rent and against the overall property value. Net yield takes into account all of the property expenses you’ll likely encounter, such as utilities, property management agents or insurance, and shows you what you’ll actually have in your pocket at the end of the day.

Calculating your Gold Coast rental yield

Gross yield is worked out by dividing the annual rental income by the overall property value and multiplying the answer by 100. It is more usual to use the amount you paid for the property in this calculation as that helps you understand your return. However, looking at current or possible future values may help you to the long-term yield potential.

To understand the net yield, deduct all of your property expenses from the gross annual rent income to arrive at the amount you can expect to see in your bank account.

No matter what type of commercial property you choose to invest in, it’s crucial to understand that your rental yield may fluctuate over time and is only ever an indication. Economic factors, changes in the local area and competitors may affect the rent you can charge or the value of your property.

For advice about commercial property investment, reach out to the team at Ray White Surfers Paradise.

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