Considering investing and playing the rental property investment game but don’t know where to take the first step? Rental properties are always long been considered an excellent investment opportunity. But first, understanding the concept of rental yield is essential to making a profitable investment.
Rental yield is one of the most essential matrices for property investors, particularly those who invest to rent. It represents the annual returns earned from a rental property in percentage terms.
Here’s how to calculate the rental yield of your rental property: First, sum up the annual rent you’d charge a tenant. Then, with the total annual rent, you divide by the property’s value, inclusive of all related costs. Finally, multiply the value by 100 and you will get the Gross Rental Yield for your rental property.
Let’s assume you get RM36,000 in rent each year and the house is worth RM700,000.
Your gross rental yield is RM36,000 (RM700,000 X 100%), which is 5%.
Formula: (Total rental income per annum/purchase price of the property, inclusive of all related cost) X 100
Formula: (Total rental income per annum – total maintenance cost/purchase price of the property, inclusive of all related cost) X 100
In Malaysia, the average rental yield is 3,72 %. A rental yield of 4% or above is considered favorable.
This formula can be used to assess the potential revenue of investment property during an investor’s decision-making process. The property market is prone to fluctuations, there is no set percentage for a decent rental yield. If the rental income you earn is simply enough to cover the costs of maintaining the investment property, you are essentially breaking even, which means you are not earning a profit or loss. If, on the other hand, the rental income is insufficient to meet the maintenance costs, you are in the move of losing money.
Everyone wants to earn profits from their rental property. However, the rental yield varies depending on various factors of the property unit, such as area, location, number of rooms, and accessibilities.
Any buy to let investment should focus on “long-term sustainability.” With the tips above, if you are considering investing in buy-to-rent property investment, understanding the concept of rental yield can be your first guideline.
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