Calculating The Rental Yield To Find The Wiser Investment
As a landlord, or a wanna-be landlord, have you ever been torn between multiple properties? A landlord’s main concern should be buying the property which will get the best return. Because let’s face it, it’s all about the money!
John wants to be a landlord, so he’s on the hunt to buy a property. John has seen 2 properties he likes. Property 1 costs 150,000 with a potential rental return of £600pcm. Property 2 costs £180,000 with a potential rental return of £775pcm. Which is the better buy?
The formula to work this out is quite simple. It basically boils down to “rental yield”
What is rental yield?
Rental yield is the amount of money a landlord receives in rent over one year, shown as a percentage of the amount of money invested in the property.
The higher the yield, the better.
Calculating rental yield
mrr = monthly rental return
i = investment
Yield = mrr*12/i*100
Rental yield for Property 1
Monthly rental return = £600
Investment = £150,000
£600 * 12 = £7,200
£7,200 / £150,000 = 0.048
0.048 * 100 = 4.8 % yield
Rental yield for Property 2
Monthly rental return = £775
Investment = £180,000
£775 * 12 = £9,300
£9,300 / £180,000 = 0.0516
0.0516 * 100 = 5.16 % yield
Although property 1 costs less to buy, property 2 has the better return.
What is a good return yield percentage?
Will, it’s actually a subjective issue. I personally think any property which has a return yield of 7%+ is extremely good. I certainly wouldn’t put my nose up at a property which generates that kind of yield.
To make life easier (because that’s what I’m all about), you can use the yield calculator below…
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