If you’re a serious property investor, rental yield is an essential metric to understand. It’s one of the many metrics that landlords and investors use to weigh up the merits of a potential investment property, alongside other data points such as capital growth estimates, population growth, vacancy rates, unemployment rates and property prices.
The rental yield calculation takes both your annual rental income and the property price into account to work out its return on investment. There are two types of yield calculations – gross and net. Gross rental yield is a quick back-of-the-napkin calculation that allows you to compare properties, but doesn’t take any operating expenses or maintenance costs into account so it’s not the same as your actual profit. Read more https://www.sellmyhousefasthoustontx.com/we-buy-houses-fairview-tx/
To calculate the gross rental yield of a property, simply add up a year’s worth of rent and then divide it by the total cost of the investment property. Remember that the total cost of a buy to let property includes the purchase price plus any stamp duty, mortgage fees and refurbishment costs that may be applicable.
The higher the yield, the more profitable the property will be. However, it’s important to remember that the yield is not a definitive measure of the quality or value of a property. There are other factors that you need to take into consideration, including the location of the property and its tenant demand, which can impact your ROI over time.
It’s also important to consider your wider investment strategy and how this property will fit into your overall portfolio. If you’re investing in a high rental yield property, it’s a good idea to ensure you have other income streams in place to cushion any unexpected financial blows.
A well-established property management software tool will allow you to track your rental returns and cash flow in real-time, giving you a clearer picture of how your investments are performing. This can help you make more informed decisions when it comes to selecting which properties to invest in and manage, as well as identifying any issues that might need addressing such as high operational expenses or a low tenant demand.
Using the above data points, Rocket Homes created an index to help investors identify the best places for investment. The index ranked cities according to their gross rental yield, housing price index data, population growth, unemployment rate, vacancy rate and percentage of renters, with weights applied to each metric to produce the final rankings.
The key is to never rely on just one metric when assessing an opportunity. If the numbers don’t add up based on the gross and net rental yields, it’s likely that you’re staring at a dud investment that will leave your pockets empty. But with a little knowledge, you can avoid these costly mistakes and focus on delivering the returns your investors are looking for. To get started, download our FREE rental yield calculator here. This calculator will give you the ability to compare and assess a wide range of investment properties with ease.