Yield generally is the earnings or rate of return on the investments made by an individual or an entity. But what is yield in real estate?
Yields in real estate is income that an investor expects to receive from an immovable property. Calculation of yield is based on two methods.
Gross Yield = (Annual rental income / property value) x 100Where,
Annual rental income is monthly rental income earned throughout the year, i.e. monthly rent x 12
Property value is the purchase price of the property.
An example to calculate gross yield is as follows:
On a property worth Rs. 45 lakhs an annual rental income is Rs. 215000. The gross yield will be calculated as,
Gross Yield = (215000/4500000) x 100
Gross Yield = 4.77%
However, high gross yield doesn’t ensure good rental income as it doesn’t encompass maintenance and upkeep cost of the property.
Another way to calculate yield is by adopting net rental yield method, the calculation for which is done as follows:
Net rental yield = [(Annual rental income – Annual expenses) / Total property cost] x 100Continuing with the above example, here is how to calculate net rental yield
Let us assume that annual expenses calculate up to Rs. 15000
Net rental yield = [(215000 - 15000)/4500000] x 100
Net rental yield = 4.44%
Are returns and yield the same?Although these terms are used synonymously, returns and yield are different. Yield as explained above, is the rental income earned from a property, whereas return includes capital gains or losses during a certain time period.
I hope you now understand what is yield and how it is calculated.
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What is yield?
Swati Choudhary
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4 Year
2021-03-10T14:34:51+00:00 2021-03-10T14:38:23+00:00Comment
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