Y is for Yield | The Formula for Residential Property Investments

Y is for Yield | The Formula for Residential Property Investments

For anyone considering investing in real estate, one of the first questions you will want to ask is: what return on investment will I get from this property or, in other words, what is the yield?

Yield is an important way of measuring the future income on an investment. It is particularly important in real estate as capital growth rates are not usually as high as the residential market. So, the return you get now and in the future, is a key factor in working out whether to invest and where.

Yield is calculated as a percentage, based on the property’s cost or market value, annual income and running costs. It does not take into account how much the property increases in value over time (i.e. the capital growth).

When calculating yield, it’s important to know if you are calculating ‘gross yield’ or ‘net yield’. Gross yield is everything before expenses, whereas net yield takes into account running expenses such as management fees, maintenance costs, stamp duty and vacancy costs.


The Formula

mrr                         =    monthly rental return

pp                           =    purchase price

Gross yield            =    mrr*12/pp*100


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