How to calculate rental yield

How to calculate rental yield

Perth Buyer's Agent Heath Bassett

Author

Buyer's agent and co-founder

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.
You and Me Personalised Property Services about Rental Yield
Heath Bassett and Simon Deering, co-founders of You&Me Personalised Property Services, talk about rental yield and what it means for property buyers.

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%

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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.

Perth Buyer's Agent Heath Bassett

Property Buyer's Agent and Co-Founder at You&Me Personalised Property Services

Buy property in Perth and Brisbane with confidence.

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