Calculation of real estate rental yield: a simple and effective method
Investing in rental real estate can be an excellent source of additional income. However, it is essential to carefully evaluate the potential yield of a property before making a purchasing decision. Fortunately, there is a simple and effective method for calculating real estate rental yield.
What is real estate rental yield?
The real estate rental yield is an indicator which makes it possible to assess the financial profitability of a property rented out. It is usually expressed as a percentage and is calculated by dividing the annual net rental income by the total cost of investing in the property.
How to calculate real estate rental yield?
The calculation of real estate rental yield is done in two main steps:
1. Calculate the annual net rental income: To do this, you must take into account the rental income, such as rents received, and subtract the charges linked to the property, such as property taxes, management fees. , co-ownership charges, works, etc. The amount obtained represents the annual net rental income.
2. Calculate the total cost of investment in real estate: This involves taking into account all costs linked to the acquisition of real estate, such as the purchase price, notary fees, construction costs. agency, possible renovation costs, etc.
Once these two steps have been completed, simply divide the annual net rental income by the total cost of investing in the property, then multiply the result by 100 to obtain the property rental yield as a percentage.
Example of calculating real estate rental yield
Let’s take a concrete example to illustrate the calculation of real estate rental yield:
Suppose you buy an apartment for 200,000 euros. You plan to rent it for a monthly rent of 800 euros, or an annual rental income of 9,600 euros.
The annual charges linked to the apartment amount to 3,000 euros, which gives an annual net income of 6,600 euros.
The total cost of investing in the property includes notary fees (around 15,000 euros) and agency fees (around 10,000 euros). The total investment cost is therefore 225,000 euros.
By dividing the annual net income of 6,600 euros by the total investment cost of 225,000 euros, we obtain a rental yield of 2.93%.
Interpretation of real estate rental yield
The real estate rental yield allows you to know whether an investment in real estate is profitable or not. A high rental yield indicates good profitability, while a low rental yield indicates more limited profitability.
It is important to note that the real estate rental yield does not take into account other important factors such as the appreciation of the property, the evolution of the real estate market, the risks linked to rental, etc. It is therefore a financial indicator, but not a complete evaluation of real estate investment.
In conclusion, calculating the real estate rental yield is a valuable tool for assessing the potential profitability of a property rented out. It allows investors to make informed decisions and maximize their chances of success in rental real estate investment.