Yield in real estate refers to the return on investment generated from a property. It indicates how effectively an investment property is generating income relative to its cost. Yield is expressed as a percentage and helps in assessing the profitability of an investment.
There are various ways to calculate yield in real estate, with two primary methods being:
Gross Rental Yield: This calculation involves comparing the property's annual rental income to its property value. The formula for gross rental yield is:
This formula provides a basic understanding of the property's income-generating potential before considering expenses.
Net Rental Yield: Unlike gross rental yield, net rental yield factors in expenses associated with the property, such as maintenance, taxes, insurance, and management fees. The formula for net rental yield is:
This calculation provides a more realistic view of the property's profitability by deducting expenses from the rental income.
Several factors can influence the yield of a real estate investment, including location, property type, market trends, vacancy rates, and expenses.
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