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Last Updated: 20th April, 2023

## What Is Rental Yield?

Rental yield is a measure of the return on your investment property from rental income. It is the total annual rental income you receive, expressed as a percentage of the property’s value. Understanding how property yield works can help you make informed decisions to ensure a good return on your investment. By knowing how to calculate rental yield, you can:
• Assess a property’s potential value as an income-earning asset, compared with others in your area
• Figure out if you’re earning a high enough rental yield or if you should reconsider your investment strategy for a particular property

## How To Calculate Rental Yield On A Property

Understanding how to calculate rental yield can help shape your investment goals. You can measure gross rental yield or net rental yield.

### How do I Calculate Gross Rental Yield?

Most people measure their returns using gross rental yield, which is the total annual rental income received from a property, expressed as a percentage of its purchase cost. Your property’s gross rental yield is calculated this way:
• Your total annual rent from the property
• Divided by what you paid for the property
• Multiplied by 100
Gross rental yield = (Total annual rent ÷ Total Property Purchase Price) x 100 For example, suppose you bought a property for \$650,000, which earns a rent of \$590 a week (\$30,680 a year). Using the above formula, the calculation would look like this: (\$30,680 ÷ \$650,000) x 100 = 4.72%, which is the gross yield of the property.

### How Do I Calculate Net Rental Yield?

Net rental yield is the total annual rental income received, minus any property expenses, expressed as a percentage of the property’s purchase price including initial costs. It provides a more accurate picture of return on a property investment, as it takes expenses into account. Calculate your property’s net rental yield this way:
• Your total annual rent from the property
• Minus the fees and expenses of owning the property
• Divided by the price of the property, including initial costs
• Multiplied by 100
• (Total annual rent – Total annual property expenses) ÷ (Total Property Purchase Price, including initial costs X 100) Let’s say you bought a property for \$500,000 plus \$40,000 in stamp duty and other associated costs, your rental income for the year was \$26,000 (\$500 a week), and your total annual expenses came to \$10000. Using the above formula, the calculation would look like this: (\$26,000 – \$10000)/(\$500,000 + \$40,000) x 100 = 2.96% net rental yield.
Net rental yield can be harder to calculate, as you need accurate information about the property’s expenses. Examples of annual property expenses include:
• Property management fees
• Strata levies (if any)
• Vacancy costs