HOW TO CALCULATE A RENTAL YIELD

How to calculate a rental yield. A rental yield is the percentage of net income generated as rental income from a commercial property. A high rental yield indicates that a property is generating a higher percentage of its total income from rental income. A high rental yield is important because it can help a property owner reduce borrowings and save money overall.

Investors are concerned about rental yield because it is a good indicator of the financial health of a property. A high rental yield indicates that the property is being rented at a high price and is generating a significant amount of income. This is good news for investors because it means that the property is performing well and is generating a high return on investment.

How to calculate a rental yield

Gross yield

Gross yield = annual rent ÷ property value x 100.

Let’s assume your commercial property annual rent projected to be ($200*12months)=$2400

Let’s now assume the property value to the average cost of same property around that particular area is $1000

Finally we multiply by 100.

Calculate: (2400/1000)*100=gross yield.

Net yield.

With the net income, the annual rent value is deducted off the all costs (operational costs, maintenance, interest, property tax and insurance). Let’s assume all costs are $1400.

Let’s use the above figures in the previous example.

Annual rent will now be (annual rent$2400- all costs $1400)=$1000<.p>

Net yield =($1000/1000)*100=net yield

The only difference between is gross yield does not subtract off all operational costs while net yield subtracts of operational costs. Better to calculate Net yield.

The higher the percentage in net yield the more the profits.

Factors that impact the rental yield on commercial property.

Location.

The closer to urban cities the higher the rent. The number of people finding opportunities normally find shelter closer. So valuing the population incomes and analyzing how much the people could afford to pay for rent gives you a better picture and plan on what to construct.

Size of the property.

The size limits the number of rooms and also future expansions are limited. So as you plan to purchase commercial property with high rental yields put in mind if the property dimensions.

Property market.

The markets also differ in terms of value. Some markets are spiking high due high population caused by different factors but there instances where the markets spike due to investor flooding in the area. This will definitely lift the market prices.

A good neighborhood.

A good neighborhood is a place where one feels safe with people around this consists of security, good roads, good schools and many others. Investing in a zone where crimes are high triggers fears to the public causing scarce demand on the rental property.

Emerging job opportunities

Areas with emerging or more job opportunities will pull bigger crowds than areas with no rapid developments. The increase in the tenants will again attract more developers in the area where opportunities are thus a good target.

Future developments.

Developing areas with more future planned structures. A good investor finds out the future plans from the management councils and is sure how he could develop according to the strategic plans of the management councils. The investor is even able to know how much it will cost in future.

Natural resources.

The more accessible the resources the more the rent price, no one can migrate to an area where access to water is a problem. Families and individuals like warm houses where everybody can utilize the resources as needed to human needs.

Condition of the property.

A buyer buying a property already in place, he must consider how much cash will be used to invent the property. The calculations of re-construction will give you how much the property would cost, not leaving out the inflation of the economy and the area where it’s located.

Property taxes.

It’s important to know how the country operates according to taxes. Some countries in Africa would not impose any taxes on property. Having power to purchase a building in Virginia is completely taxable while in Uganda it’s not. Considering where you are decides the policy.

Low Crime rate.

There areas where the security is not good enough. These areas tend to attract a less population due to the fear that is inflicted in them. No one would want to invest in a property that is going to take long without returns. Some investments are facilitated by loans.

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Hi,am Karueddie working with Edremedy solutions Ltd as a property manager and palm oil broker. i am also a golf addict and love the game as my main hobby. Feel free to contact me
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