Do Rental Yield Calculations Better Than Warren Buffett.

The rental yield calculation is a key piece of information used by astute property investors. This article will explain what a rental yield calculations is, and how to calculate it.

Use our free online calculators to quickly work out the gross and/or net yield for any residential property investment, and you will soon be as proficient as the Oracle of Omaha himself! No signup required.

 Contents

  

Yield Calculators

Gross Rental Yield Calculator

DESCRIPTIONAMOUNT
Rental income (monthly) £
Purchase price £
Gross rental yield (per annum)

Copyright: Property Investor Academy

Use Of This Calculator
1. This calculator is suitable for single let properties only.
2. This calculator is NOT suitable for multi-let properties or serviced accommodation.
3. The default values used should not be relied upon as indicators of market rates. Please customise all amounts to your actual facts and circumstances.

How To Work Out Gross Rental Yield

Expressed as a formula, Gross Rental Yield is:

Gross Rental Yield = Annual Rent / Purchase Price

Lets now take a look at net rental yields.

Net Rental Yield Calculator

DESCRIPTIONAMOUNT
Rental income (monthly) £
Property management (annual % including VAT)
Services charges (monthly) £
Buildings and contents insurance (annual) £
Ground rent (monthly) £
Rent and legal guarantee insurance (monthly) £
Total purchase costs £
Gross rental yield
Net rental yield

Copyright: Property Investor Academy

Use Of This Calculator
1. This calculator is suitable for single let properties only.
2. This calculator is NOT suitable for multi-let properties or serviced accommodation.
3. The default values used should not be relied upon as indicators of market rates. Please customise all amounts to your actual facts and circumstances.

How To Work Out Net Rental Yield Yield

Expressed as a formula, Net Rental Yield is
Net Rental Yield=(Annual rental income minus Annual Expenses)/Purchase Price

What is a rental yield calculation?

A rental yield calculation is a way of working out how much income you will earn from a property, relative to the amount paid for the investment property. It is calculated by dividing the annual rental income by the purchase price.

For example, if you paid £200,000 for an investment property that generates £20,000 in rent each year, your rental yield would be 10%. This means you would earn £1,000 in rent for every £10,000 you spent on the property.

The rental yield is the income made from rental payments in proportion to the cost of the property investment. They are very important metrics that should be looked at when choosing where to invest or buy property investments.

Yield is normally expressed as an annual percentage rate.

When it comes to rental yield calculations, property investors need to familiarise themselves few key terms in order to understand it. Gross rental yield is one of these and the other is Net rental yield.

Gross rental yield: gross rental yield is calculated by dividing the annual rent by the purchase price of the property. This will give you a percentage which will show how much income is generated by the property each year.

Another term you need to be familiar with is net rental yield. Net rental yield is calculated in the same way as gross rental yield, but it takes into account all of the expenses paid by the property investor as a result of owning the property. This includes things like maintenance expenses, service charges and property management fees.

Why is rental yield so important?

Rental yield is important to investors as it is a measure of how well their property is performing.

It is also a key factor in assessing whether a property is good value for money.

Rental yield can be used to compare different properties and investments, as well as to decide whether to buy, sell or hold a property.

It's also important to remember that rental yield calculations can change over time. For example, if rental prices go up but the purchase price remains the same, rental yield will go down.

What about capital growth?

Capital growth is NOT considered in a rental yield calculation.  Yield represents the annual cashflows that the property is expected to generate. 

Should actual cost or market value be used?

In short, it depends.

If your intention was to buy and hold the property and there hasn’t been significant capital appreciation, then actual cost should be used. 

Should property management expenses be included?

Even if you are a self-managing landlord, I would strongly argue that an expense for property management is reflected. We recommend 5% for a single let and 8 % for an HMO property.

By including a hypothetical charge for property management, a value is being put upon the time you spend managing the property.  After all, time is money! 

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Peter D Doherty

Peter D Doherty is the founder of the Property Investor Academy.

A Masters graduate in accounting and finance from Dublin City University, Pete worked in the City of London for 14 years. He held senior finance roles (Financial Controller) in several substantial UK commercial banks. He is a graduate of Macquarie University.

With over 10 years property investing experience, he is the owner of a London based lettings agency as well as proptech consultancy. He regularly contributes to online landlord forums such as Propertytribes and Reddit.  Peter is a member of National Residential Landlords Association (“NRLA”).

https://uk.linkedin.com/in/peter-doherty-tal
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