How To Calculate Rental Yield ?

[kalimantan 6]

Hi

I always read papers on rental yield is x%.

How is it calculated ? What are the parameters to consider ?

[gimz63251073 0]

i guess it depends on what u want to measure.

simply the yield is a return in percentage.

Should you include:

- repair and maintenance expenses?

- cost of borrowings?

- expenses related to rental: property tax, agent commissions, tax on rental income, etc.

Also do you want to calculate the yield over a one year period? Or take an average yield over several years as rental rates may climb or decline.

So back to the good old question of "what do you want to measure?"

My 2 cents.

[kalimantan 6]

wow, i didn't know of all these expense items as a whole (although i know it individually).

Is there an example where i can enter values in excel and calculate by itself ? Measure over 1 year is good.

Freehold means no depreciation ?

[renoseeker 0]

Hi, you might be interested in the formula here

http://smartpropertybuyer.blogspot.com/2008/02/how-to-calculate-rental-yield.html

[bepgof 20]

ROI = (Gains – Cost)/Cost

Can either be expressed in monthly, quartly or yearly, or even 10-yearly, esp true for capital budgeting investment purpose which always involve "opportunity costs" and future value of money.

The main concern here is the "cost" component at the denominator, usually ppls take it as valuation price or buying price, fixed, but, in actual fact, unless a property is fully redeemed, otherwise this "cost" is still a variable because of the monthly mortgage interest,etc.

The "cost" at numerator could be subjective as well.

- agent fee, pty tax, bills, sofa, chair, aircon....."all tangible assets/expenditures" which make the property being capable in the production of revenue. Some assets involve "depreciation" as well. It is all up to one to include or exclude from the calculation.

So long as you understand the concept, you wont get b u l l s h i t by papers. It is purely sort of marketing gimmick, and an "academic tool" for academic ppl who live in academic world.

Edited October 24, 2011 by bepgof

[renoseeker 0]

ROI = (Gains – Cost)/Cost

Can either be expressed in monthly, quartly or yearly, or even 10-yearly, esp true for capital budgeting investment purpose which always involve "opportunity costs" and future value of money.

The main concern here is the "cost" component at the denominator, usually ppls take it as valuation price or buying price, fixed, but, in actual fact, unless a property is fully redeemed, otherwise this "cost" is still a variable because of the monthly mortgage interest,etc.

The "cost" at numerator could be subjective as well.

- agent fee, pty tax, bills, sofa, chair, aircon....."all tangible assets/expenditures" which make the property being capable in the production of revenue. Some assets involve "depreciation" as well. It is all up to one to include or exclude from the calculation.

So long as you understand the concept, you wont get b u l l s h i t by papers. It is purely sort of marketing gimmick, and an "academic tool" for academic ppl who live in academic world.

Hi,

Actually, if you want to include the time value of money, then you will need to care about the interest rates and the inflation rates. And if you want to look at opportunity costs, then you would need to use a basic monte carlo simulation....

Just my two cents worth, but I think the rental yield in the newspapers and the ROI displayed there are not including time value of money or opportunity costs. Like you said, they are just simple stuff like: ROI = (Gains – Cost)/Cost

I agree with the marketing gimmick comment entirely.