Rental yield is one of the most important areas to consider when looking to buy property to let out. This calculation helps landlords determine if a property is a good investment. whether you’re a new landlord, an accidental landlord or an experienced landlord, it’s essential to know how to calculate rental yield.
Here we’ll discuss what is rental yield is and how rental yield is calculated.
How is rental yield calculated?
But first, what is rental yield? Rental yield is the financial return you are estimated to achieve on a specific rental property.
To work out rental yield, simply divide the annual rental income of the property by the total value of the property, which typically includes the initial purchase price and renovations you’ve made and need to make in the future. Then multiply that number by 100 to make the yield a percentage. You can also just apply the simple 1% rule. a property worth GHS 100,000, should be able to fetch you rent of GHS1000 if the location is suitable.
If you’re estimating a yield for a property you haven’t bought yet, it’s important to do your research to find out what you realistically could rent it out for. Look at the average rents in the area and think about factors that impact the cost of rent, such as proximity to local amenities and transport links.
Gross yield vrs net yield
The gross yield and net yield can be calculated for any property. The net yield takes annual running costs and other expenses into consideration, which is subtracted from the annual rental income. Gross yield doesn’t take this into account and just calculates the yield based on annual rental income and the value of the property.
Annual rental income / total value of property x 100 or 1% = gross yield
To get a full picture of how rental operating costs will impact your profit and yield, calculate the net yield by deducting all of the necessary expenses from your rental income, including:
Maintenance and repairs
Once you subtract the annual operating costs from the rental income, divide that number by the total value of the property and then multiply it by 100 to get the net yield.
Short-let rental yields
Landlords in Accra and Kumasi are able to achievehigh long-let yields, but short-term rental yields have been found to be even higher in both cities. Our research shows that landlords in Accra can achieve short-let rental yields of about 48% depending on how effectively your property is being managed.
We are seeing a huge increase in landlords utilizing both long and short-term lets in their property portfolio to generate the most lucrative profits. To generate the highest returns, location is key, so it’s important to do your research when looking for a new property to invest in.
If you’re considering putting your property on Airbnb, find out how our Airbnb management works through our Accra Short Stay service. We have branches in Accra and Kumasi and will take care of everything, from the set up to the guest communication.
Let us invest for you
With our experience as a leading sales and lettings agency, we can help you generate higher returns and make the most out of your property portfolio.
Give us a call on 0243417990 if you’d like to learn about this service or our other services.