Rental Yield Calculator

Use this rental yield calculator to discover how much your investment property is forecast to earn.

1601614029185

Ed McKnight

Economist, property investor and host of the Property Academy Podcast
Introduction

Prospective buyers need to do a boatload of number crunching when eyeing up a new investment property, and rightly so. Regardless of whether you’re a first-time investor unsure of where to start, or you’re a seasoned pro and want a rapid-fire calculation, an online calculator can be a great tool.

Keep reading below to find out which rental yield calculations to pay attention to and how this rental yield calculator works.

Yield Explained

What Is a Rental Yield?

Rental yield is the amount of money your investment property generates. But what many first-time investors don’t realise is that there are multiple types of rental yield.

For instance you have the gross yield. This is the most common calculation discussed in property investor circles.

It’s worked out by taking the annual rental income and dividing it by the property’s purchase price or the current market value.

Grossyieldrentx52

More important is the net rental yield. This takes into account not just the revenue a property generates, but also operating costs of a property.

Netyieldrentx52

You can do the math, or you can use a yield calculator.

A good rental yield depends on the type of property and location you’re investing in.

For instance, if investing in a growth-focussed property, like a townhouse in Auckland, target gross rental yield is between 4 - 4.75%.

However, if investing in a yield-focussed dual key apartment or a room-by-room rental in Hamilton, that should attract a rental yield in the 5.5 to 6.5% range.

The Results

How Can I Interpret The Calculator's Results?

After putting your information into the calculator, you’ll see a gross and a net yield amount, which is broken down further to give you an estimated weekly cash flow figure.

Let’s go through the differences.

Gross Yield

Gross yields are calculated by taking the rent your property is expected to achieve each week, multiplying it by 52 weeks to get the potential annual rent, and then dividing that figure by the purchase price or value of your property.

Opes Properties

They're easy to calculate (which is why you'll often see them mentioned and reported in the media) but for an individual property investor looking at a particular investment, a gross yield is not very useful.

Why? Because a property might attract a lot of revenue as a proportion of the purchase price, but it could actually cost you money each week. This would happen if the costs associated with the property, e.g. maintenance, are also very high.

For example, if you invested in a run-down property in an area where property prices are cheap, it will likely get a high gross yield. But if the hot water cylinder bursts, there are ongoing maintenance issues, or the property is structured on a principal and interest loan, it could well be cash-flow negative.

Net Yield

With all the above limitations considered, it makes sense to pay attention to the net yield of an individual property.

It’s what your cash flow would be, after all your operating expenses, but before your mortgage expenses.

Operating expenses include rates, insurance, property management and maintenance. But it excludes the financing costs of your mortgage.

The net yield figure is much more useful when comparing properties because while your finance costs will be very similar, your operating expenses can vary widely between properties.

The apartments are expected to earn the same amount in rent, but one has a higher body corporate than the other.

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Calculations

When Making Calculations, Should I Use Purchase Price Or Current Value?

To work out the rental yield, you need to use the properties purchase price / current value of the property.

There is an argument in property investment circles about whether to use the price you paid for the property or the price it’s actually worth.

Here at Opes we recommend using the current market value of a property.

rental yield calculated for property

The reason for this is that house prices change. It doesn’t matter what the property was worth 10 years ago: you want to know the yield of the money you’ve got invested today.

For instance, if you bought an apartment for $275,000 in 2011 and rented it for $300 a week, it would attract a gross yield of 5.67%.

Let’s now say that over the last 10 years the property has doubled in value and is now worth $550k. Now let’s say that over that period the rent stayed the same.

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If you calculate gross yield based on the original purchase price, the yield would still be 5.67%.

But calculate the yield based on current value and the property attracts a yield of 2.84%.

That’s below our acceptable yield range for an apartment (4.5% - 5.5%). This would raise alarm bells for savvy investors, who would immediately seek to increase the rent because the property is under-rented.

But if you had used the original purchase price as your guide you could have missed this.

Other Calculators

What Other Calculators Can I Use?

If you're considering investing in property, then it's likely you'll want to run a whole heap of different numbers at different stages along the journey.

That's why Opes has created a range of different property investment calculators you can use to check whether it makes sense for you to invest.

Who Are Opes Partners?

Who are Opes Partners and can they help me?

What is the 3-Step Opes Coaching Programme?

1. Plan out your property investment portfolio

The first step in the programme is to co-create a plan using our MyWealth Plan software. We built this software specifically to help Kiwis create a financial plan in under an hour.

You'll leave this 1-hour session with a written down plan. Pen to paper.

2. Pick properties that fit with your plan

Once you've created your plan in step #1 – your property partner will go out and find properties that fit your plan. They'll search through projects from up to 58 developers to find the best ones for you.

When you meet again, you'll review the top picks, go through the analysis, crunch the numbers together, and then decide which ones to hold with the developer.

3. Dig into the details – Confirm it's the right property for you

Once you've selected a property, you'll work for 10 days to make sure it's the right property for you. So you'll work with your Property Partner and Client Relationship Manager to dig into the details of the property.

You'll go and look at the development and be introduced to mortgage brokers, solicitors, accountants, and property managers. Their sole job is to help you figure out if this property works for you.

And you’ll have access to all the resources, tools, and data … so when confirmation day comes, you have confidence you know you’re making the right decision.

Who is the Opes Coaching Progamme the right fit for?

  • You understand the concept of property investment, but who wants help putting it into practice.
  • You want a “Done for you” property investment service, so you can be a hands-off investor.
  • You are someone who has at least a 10 year investment time horizon.
  • And finally, you’re ready to become a property investor.

Who is the Opes Coaching Progamme is NOT the right fit for?

  • You’re more into the smell of paint or the colour of a wall than the numbers that stand behind an investment property.
  • You only want investments that are hands-on, so you can save a few dollars here and there.
  • You have plenty of time on your hands and want to do the property investment process yourselves.
  • You’re looking for an overnight success and want to get rich quickly.

What does it cost to work with Opes Partners and go through the programme?

It’s free. Complimentary. No Cost.

Why?

The developer pays us a marketing fee when you confirm that the property is the right fit for you. Very similar to the way a mortgage broker gets paid by the bank.

Now it's important to note that we are paid the same fixed rate no matter what property you invest in.

If it’s a $500k apartment in Christchurch or a $1.3 mil 3-bedroom townhouse in Ponsonby – we get paid the same rate.

That's important because then we can recommend the right property for you, and there's no incentive to recommend you invest in a more expensive property, just so we get paid more.

I want learn more about how Opes can help me

Learn more about the Opes Coaching Programme Here

1601614029185

Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.