How to calculate the Yield achievable on a rental property
How is it calculated?
- Firstly, take the monthly rental amount, which will be listed in the tenancy agreement for the property.
- Next, multiply this by 12 to establish a yearly income.
- Then, subtract any percentage of the year that the property may be unoccupied (if applicable). Add together the yearly outgoing costs – e.g. insurance premiums, replacement of fixtures and fittings, periodical property redecoration, maintenance, ground rent (if the property is leasehold) and the lettings agency costs, etc.
- Then, subtract the total outgoings from the yearly income to determine the net income.
- Lastly, divide your net income by the total property value and multiply this by 100 to get a percentage figure.
This is the Net Rental Yield - the return on your investment.