In real estate, yield is a term that refers to the amount of future
income that an investor can expect a property to produce. Most often the
yield is calculated as an annual figure and is represented as a
Understanding what kind of yield to expect from a piece of property
is an important thing for an investor to be aware of to make strong
There are in fact two different types of yield that all overseas investors should be aware of;
Gross Yield – Gross
yield refers to the total earning potential that a property can produce.
It is important to understand the total amount of money that a property
can produce to weigh it against the cost of maintaining it.
Net Yield – The net
yield refers to the actual amount of income that a property will produce
for an investor after taking maintenance expenses into account. For
properties, which may require inspections, incur legal fees, vacancy
fees, and repairs, these expenses can be quite large, and sometimes
negative, so calculating the net yield is extremely important.
Calculating a Yield
To calculate the gross yield, you take the annual income from rent,
which is the weekly rent multiplied by 52 and divide that by the
property value multiplied by 100. The formula looks like this:
Gross yield = annual rent (weekly rent x 52)/ property value x 100
So if your rent is $400 per week, and the value of the property is $500,000, then the equation would work out like this:
$400 x 52 = 20,800/$500,000 x 100 = 4.2%
The net yield simply subtracts the expenses from the annual rent. So our new equation would look like:
Net yield = Annual rent – expenses (weekly rent x 52 – annual expenses)/ property value x 100
So if our expenses were $3,000, to calculate the net yield you would do this:
20,800 – 3,000/500,000 x 100 = 3.56%
This give you a below county average yield of 3.56%.