Rental Yield: How to Calculate Your Potential Investment Profit

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The core of every investment is profit. After all, ensuring your money continues to grow without working more hours or jobs, is one of the key aspects of investing. To ensure safe returns of your investment, the best industry you can get into to start building your portfolio is real estate. 

The market for housing is always in demand and value for properties appreciates over time. Additionally, you can rent your property to increase potential income and lessen the financial weight of paying mortgages from you.

However, before you start looking into the property you want to buy, you need to know about rental yield since this is a key factor in your investment strategy.

What is rental yield?

When you rent your property, the annual profit you make after the yearly property costs you spent has been deducted. Considering this is the first step to ensure that you’re on the right track towards achieving your financial goals since you can factor in the following:

  • Location → Determining the right location to make higher returns on your investment is important, which you can do when you factor in the rental yield on a property
  • Property → Figuring out what property will yield the profit you want is easier
  • Profit → The higher the profit at a low cost for you as an investor would work best. This means you need to compute the possible rental yield of each property you consider, determining the best one to yield the income you want.

There are two categories under rental yield that you need to understand: 

  • Gross rental yield → The gross rental yield determines the profit once you divide the property value from the annual rent income.
  • Net rental yield → The net rental yield determines the profit once you deducted the property value and total property costs spent to the annual rent income.

Keep in mind that properties with good rental yield, ranging from 2% and above, are best for you as an investor. 

How to calculate rental yield?

Calculating rental yields, gross and net, are easy as long as you have the following:

  • Property value
  • Monthly/Annual rent profit
  • Total property expenses

To calculate gross rental yield, you only need to divide the property value from annual rent and then multiply it to 100.

Gross rental yield (GRY) formula

(Annual rental income / Property value) x 100 = GRY

For example, if you have an annual rental income of $48,000 and your property is valued at $750,000, then your GRY is 6.4% based on the computation:

($48,000 / $750,000) x 100 = 6.4% gross rental yield per annum

To calculate net rental yield, subtract the property expenses from the annual rental income then divide it to the property value and multiply it to 100.

Net rental yield (NRY) formula

[(Annual rental income – property expenses) / Property value] x 100 = NRY

Using the same sample above with annual property expense at $7,000, then the net rental yield is 5.5%, following the computation:

[($48,000 – $7,000) / $750,000] x 100 = 5.5% net rental yield per annum

Rental yield in Cambodia

Among countries in Asia, Cambodia has one of the best rental yields for investors, amounting to an average of 5.33% GRY as reported by Global Property Guide. In Phnom Penh alone with that GRY, the average buying price for properties is at $349,560 with a standard of $1,553 rent per month. 

Since Cambodia’s economy is expected to grow to 7.3% GDP by 2022 and real estate being one of the main driving factors of economic growth, your return on investment is high. Start looking at the right real estate properties for you in Cambodia by calculating the rental yield now!

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