Are you thinking about investing in rental properties but aren’t sure if it’s the right move? If so, you may be wondering about what exactly rental yield is and why it’s an important consideration when considering whether to invest in real estate or not.
Rental yield is the annual return you get on your investment property, which is calculated by dividing the total rent collected by the purchase price of the property. This means that, the higher the rental yield, the better the property investment. All real estate investments should have at least a 5% rental yield to be considered good investments.
What is Rental yield?
A rental yield is a calculation of how much income is brought in from renting out an investment property, divided by how much you paid for it. The term rental yield is also used to describe how much income a potential property will bring in relative to its purchase price. This would make it a very good investment and even more valuable when calculating cash-on-cash return.
How to calculate rental yield?
To calculate rental yield, divide annual rental income by total purchase price, multiplied by 100. Investors can use rental yield to compare properties or make direct comparisons with other types of investments (such as bonds and stocks) with which they may be more familiar.
Generally speaking, if you’re looking for higher returns on your investment dollars and don’t mind higher levels of risk, then you should consider investing in commercial real estate instead of residential.
Commercial real estate has a much higher potential return than does residential—but it also comes with much greater risks. If you are interested in purchasing an apartment building, condo building, or any other type of multifamily home for rental purposes, take some time to learn about what makes good rental yields so that you can ensure your money is well spent.
What is a good rental yield?
A rental yield that is no less than 6% can be understood as a good rental yield.
How to make sure you get a good rental yield?
Before you buy any investment property, you’ll want to have a handle on your return on investment (ROI) and make sure it meets or exceeds your target rate of return. If ROI isn’t one of your strengths, look for an expert broker who can guide you through the process. Depending on your financial goals and what type of property interests you most, several strategies may work better than others.
For example, buying a property with a low purchase price might be more profitable in terms of rental yield if you plan to sell in five years or less—but buying an expensive property might be more lucrative over time if you plan to hold onto it for 10 years or longer. A real estate agent can also help by providing data about recent sales in your area so that you can get a sense of what properties are selling for and how much they’re renting for currently.
If you invest in a property with a good rental yield, and over time your rent goes up substantially, that means you will see huge returns on your investment. Keep an eye out for areas where prices are low but rents are high. A lot of people focus too much on buying cheap properties when they should be looking at how much they can make off their investments instead. With a good rental yield, you’ll never have to worry about selling or moving again!