Property investment is a money making business and you may have heard from real estate property investors about the term ‘rental yield’. It’s pretty obvious that you want to invest in such properties which yield good rental income. To search the profitable properties in the property world real estate property agents and West Coast Valuers could help you in finding the one.
Here in this blog post, we will share you about what is rental yield and how to calculate it.
Rental Yield -
It is the percentage of returns of investment from rental income generated from investment property. Rental yield is calculated by the total income generated by rental property in a year to the actual market value of the property. In other words - It is the calculation of - rental income annually produced by an income generated property (i.e rental property) to the rental property value.
Calculating rental yield helps you to measure the rate of returns of investment. With this you will get to know to invest in such rental properties will give good ROI or not. Thus it becomes important to understand how to evaluate the rental yield.
Way to calculate it -
Basically, there are two ways to calculate the rental yield. One Gross value and another one is Net value.
To determine the gross rental yield it is important to have an annual rental income of the rental property and the actual market value of the property.
To find the “Gross rental yield” divided the ‘Annual rental income’ by ‘Total value of the property’ multiplied by 100.
Gross rental value = (Annual rental income/ cost of property)*100%
For instance - Properties annual rental value is $22,000 and properties cost is $3,00,000. Then the gross rental value will be - 7.3%.
Though evaluating the gross rental value is easy but it is not the ideal way to find the rental yield cause it might possibly the gross rental yield is high but its return value is too.
Then another way to calculate the rental yield is “Net rental yield”. In this process the annual expenses related to the property like - maintenance and renovation cost, insurance cost, property tax amount will get deducted from the annual rental income and then the value will be divided by the cost of an investment property to find the Net rental yield.
Net rental yield = (Annual rental income - annual property expenses)/ cost of the property* 100%.
For instance - Property cost is $3,00,000 annual rental income generated from that property is $25,000 the expenses $2000.
Net rental yield = (25000-2000)/ 3,00,000*100% = 7.6%.
These are the ways to evaluate the rental yield.
The rental yield varies from property to property. For some 6.5% rental yield is good and for some, it is not. It is the subjective matter and one should not completely rely on rental yield while buying or selling the real estate property. It is advisable to take advice from local property valuer from valuations wa to avoid future issues and to invest your money in where returns of investment are high.
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