How to calculate rental yield

Rental yield explained

How buyer’s agents can help you maximise your rental yield

G’day everyone, Simon and Heath from You&Me Personalised Property Services. Today we wanted to give you guys an explanation to one of the most asked questions we get in this business from first-time property investors. And that is: what is rental yield?

Hi everyone, yes, it is a term thrown around quite regularly, but not everyone knows what it is, and it doesn’t have to be first-time owners. It could be anyone. So when we talk about rental yield, essentially what it is in real terms is:

• How much rent you get divided by how much you paid for that property.

How to calculate rental yield

So we’ll use a $500 a week rent income, and we’ll use $500,000 on the property just for ease. Now, if we take the $500 a week rent and we times that by 52 because that’s 52 weeks in the year,  that equals $26,000 of rental income you get per year.

What we do is we divide that rental income by the purchase price, which in this case is 500,000.

• Rental income / purchase price

That comes out at a decimal number or decimal point. And then what we do with that decimal number is we times that by 100 to make it a real time percentage. So, in this case, we do 26,000 divided by 500,000 equals 0.052. We time up by 100 and that equals 5.2%.

• $26,000 / $500,000 x 100 = 5.2%

Rental yield calculator

Enter your property price and your rental income

Rental yield and mortgage repayment

And then what does that rental yield at 5.2% mean in relation to a mortgage repayment?

Principal and interest repayments

So right now, obviously, mortgages are up and down inside out back to front, but we’ll take it three and a half percent (3.5%) variable mortgage interest rate. And essentially what that means is at 5.4%, you’ll be paying off your principal and interest mortgage repayments.

Okay. So the tenant would be paying for the client’s purchase?

Essentially, yes.

Getting a good rental yield

Rental yield in Perth

Now that’s at 5.2%. Perth has the highest rental yield of any capital city around Australia right now. Where does that sit?

So the average in Perth at the moment is 4.4%,. But we can proudly say that we’ve been regularly achieving for the past 6 to 12 months anywhere from 5%, all the way up to 6.5%.

So a 5.2% has your mortgage paid for with the tenant? 5.4%.

Anything over 5.4% essentially means that it’s money back for our client.

Yes, that’s right.

4.4% rental yield in Perth (average)

And at 4.4%, that’s where Perth sits as a capital city, which is the highest, and we’ve been achieving consistently above 5%. Yes, well above 5%!.

So if you got any questions at all relating to rental yield or any other property questions and obviously about Perth, come and see us, come and have a chat.

Do you need to know more about rental yield?

Book a free discovery meeting with the co-founders at You&Me Personalised Property Services. We’re Perth’s leading buyers agents, and we’ll be happy to assist buyers with their property purchases. Until next time, happy investing.