Rental yield is the income return rate over the costs associated with your investment property.
It’s frequently used as a metric in property data and expressed as a percentage.
The 2 types of rental yield are Gross and Net.
Gross Rental yield is worked out with the annual rental income and the property value:
Annual Rent income= 52 x weekly rent
Property Value= Purchase or market value
Gross Rental Yield= Annual Rental Income/Property Value x 100
Ie- A property purchased for $390,000 and returns an annual rent of $26,000 would have a current rental yield of 6.67%.
Gross rental yield does not take into account the expenses associated with keeping the property.
Net Rental Yield is a more accurate prediction of rental return.
You will need to estimate all of the costs and expenses associated with your investment property such as:
- Purchasing & transaction costs
- Ongoing fees and expenses
- Vacancy costs
- Loan costs
- Building & pet inspections
- Strata reports
- Stamp duty
- Legal fees
- Mortgage repayments
- Repair & maintenance
- Strata levies
- Council rates
- Property management/advertising fees ( *slash these using RealRenta)
- Loss of rent due to vacancy periods
- Insurance
- Depreciation
Once you have added up all of these costs, you can use the following formula to work out the net rental yield:
Net rental yield= Annual rental income- Annual Expenses/Total Property Cost x 100
ie: If the overall purchase price of your property is $430,000 and the weekly rent is $500 and the annual expenses are $4,500, then the current rental yield would be 5%.
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