# Free rental yield calculator

Calculate your cashflow, and return on investment period by entering your property price, monthly rent, annual expenses, and vacancy  rate below.

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## Calculating rental yield

### Estimating a property's performance

Before you purchase an investment property, you can calculate the current rental yield to determine the profitability of the asset. You need to know the purchase price, the current estimated rental return for and cash flow as well as an estimate for operational expenses and average vacancy rates.

### Understanding an existing property's performance

You want to keep an eye on your property’s rental yield to ensure that your investments are achieving the returns that are required and make any necessary changes. For example, you might have more expenses than you expected and need to look at ways of reducing these overheads.

### What is rental yield?

Rental Yield is a measurement that investors use to understand an income-generating asset’s performance over the course of a year. It measures how much cash your investment produces as a percentage of the asset’s value. In real estate then it is the rental income as a percentage of the property’s value.

When thinking about rental yield there are two terms you need to be familiar with: gross yield and net yield.

### Gross yield

Gross yield is the return on your investment before expenses and vacancies are taken into account. Gross yield also does not take interest rates into account. Gross rental yield is a common metric to look at when analysing returns as it is simple to calculate letting you easily compare properties.

### How to calculate gross rental yield

You take the ‘Annual rental income’ and divide by the ‘Property value’. Then multiply this number by 100 to get a percentage value.

Example:

Property value £600,000. Expected rent £3,000 a month.

£3,000 x 12 = £36,000
(annual rental income)

(£36,000 /£600,000) x 100 = 6% gross rental yield

### Net yield

Net yield takes into account any expenses or other outgoings such as maintenance costs, mortgage payments and insurance. Net yield is sometimes referred to as a rate of return. Because it takes into account these expenses it gives a more accurate picture of an investment’s cash flow than gross yield.

### How to calculate net rental yield

Take the ‘Annual rental income’ and subtract the ‘Annual expenses’. Then divide this number by the ‘Property value’ and then multiply by 100 to get a percentage value.

Example:

Property value £600,000. Expected rent £3,000 a month.
Annual expenses/loss £6000.

£3,000 x 12 = £36,000
(annual rental income)

((£36,000-£6,000)
/£600,000) x 100
= 5% net rental yield

### Cashflow

A rental asset should have a positive cash flow even after surprise expenses. You will want to calculate how quickly you can make a property positive after your initial expenses immediately after purchasing the property (eg. renovations).

This should be considered on a yearly basis as well as an overall basis to give yourself the best possible understanding of your property’s cash flow.

### Payback period

This is how long it will it take to breakeven on your investment. We work this out in our calculator from your cash flow, vacancy rate, and property purchase price. However, you should also consider mortgage interest rates when calculating this.

## What is a good rental yield?

There’s no universal answer to this question. Determining the strength of an investment depends on numerous factors as well as your overall investment goals and intentions.

In an ideal world you’d aim for 7%-8%, however, it is definitely worth noting, that this may not be realistic in certain locations, or necessary if you've a longer term investment strategy that is more reliant on capital gains.

Other factors that should be taken into consideration, include but are not limited to:

### OCCUPANCY RATES

Is the property in a desirable location, near amenities, the town centre, schools, or public transport? etc.

### APPRECIATION & CAPITAL GAINS

How much appreciation has the area experienced over the last 20 years? Have you done work on the property? Did you purchase at a good price? How much CGT can you expect?

### RISKS

Are there any local developments that might damage the property of the value eg. is it on the planned HS2 line? Are there signs of a property bubble? What new legislations might impact profits down the line?

### HOLDING PERIOD

How long do you plan on holding the property?

### INVESTMENT STRATEGY

What is your overall investment strategy? Build wealth for retirement? Supplement your existing cash flow?

A high rental yield is certainly a good thing to have. However, the best investors consider as many facets of their investment as possible to help themselves achieve the best returns from their investment portfolio in the long run.

### Increasing cash flow for a good rental yield

• Choose markets with high rental demand and manage your leases well,
• Spend money to make money: simple renovations like a fresh repaint will allow you to enjoy premium rent,
• Rent by the room,
• Increase marketing efforts to avoid vacancies,
• Charge a competitive rental rate.