If you’re thinking of buying an apartment in Kottayam to rent it out, proceed with care! If you’re not careful, you may wind up losing money instead of gaining money. This is why it is critical for landlords to assess the rental yield of a property prior to letting it out.
The rate or percentage of returns from an investment property’s rental revenue is known as rental yield. It’s also known as the investment rate of return. Real estate agents and sellers frequently assess the rental yield before placing a home on the market.
What is the formula for calculating rental yield?
According to Noel projects, famous Builders in Kerala, Gross rental yield and net rental yield are two types of rental yield
The annual rental revenue divided by the property value is the gross rental yield. It does not include the property’s upkeep costs or the amount you pay in taxes. It’s just the amount of money you make as an annual renter.
(Annual rental income/property value) x 100 Equals gross yield
Monthly rent multiplied by 12 equals annual rental income.
Property value equals the property’s purchase price.
Assume you paid Rs 10 lakh for a house and have been generating Rs .6 lakh in yearly rental income. In this instance, the gross rental return would be 6%.
Because gross yield does not account for the costs of property maintenance, a high gross yield does not always imply a high rental revenue. High maintenance expenses may result in a significant reduction in earnings.
All sorts of costs related to the property should be addressed before determining the net rental return. This can include transaction fees, taxes, continuing fees, expenditures, and maintenance fees, among other things.
[(Annual rental revenue – Annual expenditures) / Total property cost] Equals net rental yield 100 times
After deducting yearly costs from annual rental revenue, you may calculate the net rental yield.
A decent rental yield is typically seen as being between 7% and 11%. While a modest rental yield might range from 3-5 percent. High rental yields exceeding 6 percent are preferable for investors since they generally produce a consistent cash flow.
Interest rates given by various investment channels such as equities, mutual funds, fixed deposits, and gold can be compared to the rental return. Home purchasers prefer net rental return over gross rental yield because it is more practical and realistic.