Time to read: 3 mins
An investment property is more than a home, it is also a stream of income and should be thought of and managed as a business.
Taking the time to learn how to minimise expenses, as well as increase your income and the rental yield of the property is a big part of any investment. Determining your rental yield for an investment property sounds more complex than it is in reality.
Rental yield is how much money you can make on an investment property and can be determined by measuring the gap between your costs and the rental income you receive.
Understanding how your rental yield works will offer you a solid idea of your ongoing return and will highlight when it is time to review your rent.
These are the simple steps to take when calculating your Gross Rental Yield:
- Take the TOTAL of your Annual Rent
- DIVIDE your Annual Rent by the Value of the Property
- MULTIPLY that number by 100 to get the percentage of your Gross Rental Yield
$20,000 in total annual rent, for a property worth $400,000.
($20,000 ÷ $400,000) x 100 = 5%
An ideal gross rental yield is between 3-5% for metro areas and more than 5% in regional areas. Rental yield is one of the three metrics used to measure the success of an investment property
If the investment property is new, you can also work backward to determine how much rent you can charge. Simply work out what 4-5% of the purchase (or valuation price) of the property is, and you have your annual rental charge.
There are some exceptions to this 4-5%. Very expensive properties work with a 2-3% rental yield, while regional properties can work with a 4-7% rental yield.
If you plan to work with a real estate agent/property manager when renting out your investment property they can help you determine how much your property is worth in the current rental market as supply and demand certainly play a part.