How to Work Out Yield on Rental Property
Calculate the total income for the year from that rental property., Total the mortgage, insurance and tax payments for the rental property., Add other property-related expenses to the total loan payments., Divide the total income from your rental...
Step-by-Step Guide
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Step 1: Calculate the total income for the year from that rental property.
This is usually the total rent payments, but may also include application fees, payments for repairs or improvements, and any portions you kept from a security deposit.
Example:
For 4 months of the year, your property has a tenant paying $1,400 per month.
It is vacant for 2 months, then your rent it out for the remainder of the year at $1,500 monthly.
Your total rental income is $14,600.
You keep the entire $1,000 security deposit from the first renter, and collect a $120 application fee from the second renter.
Your total annual income for the rental property is (14,600 + 1000 + 120 = ) $15,720. -
Step 2: Total the mortgage
Often, these 3 payments are all part of the same draft for your loan.
Your monthly payments for mortgage, insurance and tax come to $1,000 per month, which is a total of $12,000 annually. , These typically include material and service costs for repairs and improvements, but could also include legal fees, utility fees for times the property is vacant and advertising or processing expenses associated with finding new tenants.
You spend $1,100 on new paint and minor repairs when the first tenants move out, plus $250 in advertising and background checks for the new tenants.
Your total annual expenses for the rental property is (12,000 + 1,100 = 250 =) $13,350. , Multiply the difference by
100.
The result is the annual yield for your rental property.
Your net profit on the rental property is (15,720
- 13,350=) $2,370.
If the property originally cost you $180,000, your annual yield is (2,370/180,000 =0.013*100=)
1.3 percent. -
Step 3: insurance and tax payments for the rental property.
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Step 4: Add other property-related expenses to the total loan payments.
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Step 5: Divide the total income from your rental property by the total expenses.
Detailed Guide
This is usually the total rent payments, but may also include application fees, payments for repairs or improvements, and any portions you kept from a security deposit.
Example:
For 4 months of the year, your property has a tenant paying $1,400 per month.
It is vacant for 2 months, then your rent it out for the remainder of the year at $1,500 monthly.
Your total rental income is $14,600.
You keep the entire $1,000 security deposit from the first renter, and collect a $120 application fee from the second renter.
Your total annual income for the rental property is (14,600 + 1000 + 120 = ) $15,720.
Often, these 3 payments are all part of the same draft for your loan.
Your monthly payments for mortgage, insurance and tax come to $1,000 per month, which is a total of $12,000 annually. , These typically include material and service costs for repairs and improvements, but could also include legal fees, utility fees for times the property is vacant and advertising or processing expenses associated with finding new tenants.
You spend $1,100 on new paint and minor repairs when the first tenants move out, plus $250 in advertising and background checks for the new tenants.
Your total annual expenses for the rental property is (12,000 + 1,100 = 250 =) $13,350. , Multiply the difference by
100.
The result is the annual yield for your rental property.
Your net profit on the rental property is (15,720
- 13,350=) $2,370.
If the property originally cost you $180,000, your annual yield is (2,370/180,000 =0.013*100=)
1.3 percent.
About the Author
Peter Ramirez
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