Rental Yield

What is a rental yield? 

A rental yield is a way to measure the income generated from renting out a property. It's calculated by taking the annual rental income and expressing it as a percentage of the property's value. 

Calculating a rental yield 

Suppose a property is valued at $800,000 and generates $16,000 in rental income per year. Here, the rental yield would be 0.02 or 2% ($16,000/$800,000). 

Rental yields vary from property to property and  depend on factors such as location, property type, rental market conditions, and the purchase price of the property. 

Gross vs net rental yield 

The difference between gross rental yield and net rental yield lies in how they're calculated and what they represent. Gross rental yield is a simple calculation that compares the annual rental income to the property's market value. It gives a basic idea of how much return you could get from renting out the property without considering any expenses. 

Net rental yield, on the other hand, provides a more realistic picture. It factors in all the ongoing expenses associated with the investment property, such as insurance, maintenance, and legal fees.