Between 5 and 8s is a good rental yield. Calculate the rental yield by dividing the annual income by the total investment, or use a yield calculator. Student rentals may have the highest yields, but will have other costs. So what is considered a "good yield for your rental property? In a perfect world, 7-8% would be the ideal rental yield.
However, things are a little more complicated. As an investor, high rental yields are better because they tend to generate a steady cash flow. Investors tend to look for properties with a rental yield above 5.5% because of the stability of rental income. For prospective landlords, studying average rental yields across the country can help determine what their ideal interests and outcomes are.
The answer to what is a good rental yield depends on where you plan to buy. Yes, many ideally aspire to a property that has a rental yield of around 7%. But you also need to have a good location, good capital growth and good tenant demand. The gross rental yield is a good selection tool for choosing properties that generate higher rental income compared to the value of the property.
NOI is calculated by subtracting operating expenses (excluding principal and interest on the mortgage payment, capital expenditures and the non-cash deduction for depreciation) from the annual rental income of the property. By dividing the actual or estimated gross rental income by the sales price or market value of the property, an investor can quickly calculate the property's gross rental yield to see if it measures up. Whether you are new to real estate investing or a landlord with several properties under your belt, it doesn't matter: calculating the rental yield of your properties is something you can't overlook. It is especially important for beginning investors to know what a good rental yield is because it lets them know if they are making money on a rental property, if they are making a profit.
A property with a high net rental yield is ideal for risk-averse investors who want to afford the peace of mind that their investment generates a good cash flow and ultimately takes care of the mortgage payments. From your rental yield, you will also need to cover management fees, landlord purchase insurance and maintenance costs, which can fluctuate. Property investors calculate rental yield to help identify properties with the highest profit potential and to identify opportunities to increase the overall yield. Note that the gross rental yield does not reflect the amount of profit (or loss) the property generates, but rather the amount of gross rental income compared to the price of the property.
A property with a low rental yield, ranging from 2 to 4%, may mean that it is overvalued. That said, the profit on properties is 57% over the period of ownership or around 9 nual (some were in a state and have been refurbished producing large profits in the first year of ownership) so a total return of around 18%. To illustrate, let's consider a property market where the net rental yield on a typical single family home is around 6%. Once you have purchased a property, you will want to monitor the rental yield to ensure that you are charging the right amount and that your property is producing the returns you need to make a profit.