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If you are new to property investing you might be overwhelmed with all of the information available to you.
Today, we take a quick look at rental yield and provide you with a graphic that will help you remember quickly how gross and net rental yield is calculated. After all, the numbers are the most important part of your investment!
The gross rental yield is calculated by taking the yearly rental income of a property and dividing it by the property purchase price.
For example – if the monthly rental income is £1,000 and the property is occupied with a tenant for the full year, you will receive £12,000 per annum. If that property cost you £250,000 to purchase you would use the following calculation to determine the gross rental yield;
£12,000 / £190,000 = 0.0631
0.0631 x 100 = 6.31%
Gross Rental Yield = 6.31%
The net rental yield is calculated taking into account the costs of running the property and includes any outstanding mortgage payments, making it more accurate overall.
This is calculated by taking the yearly rental income and subtracting the costs associated with owning and running the property, which is then divided by the property purchase price. As an example if the annual rental income is £12,000 and the annual costs of the property (including mortgage payments, insurance, factoring, repairs, etc) is £4,500 then the annual profit would be £7,500. Divide this by the purchase price of £190,000 and the net rental yield comes 3.94%
£12,000 – £4,500 = £7,500
£7,500 / 190,000 = 0.039
0.039 x 100 = 3.94%
Net Rental Yield = 3.94%
If you are planning on becoming a landlord for the first time you need to pay very close attention to rental yields and be sure to conduct full due diligence in your identified areas, or why not leave it to the experts and contact Murray Property Holdings who can get you started on your property journey with asset backed investment.
www.murraypropertyholdings.co.uk
info@murraypropertyholdings.co.uk
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