Calculating Rental Yields, 2 Approaches

Method 1: Basic Rental Yield calculation

Illustration
Monthly rental received – $3500
Purchase price of property (Eg. a 3 bedroom unit in Sunny Spring – $900k)
Annual Rental received – $3500 x 12 = $42000

Basic rental yield will be – 42000/900k x 100% = 4.6% per annum


Method 2: Rental Yield based on leveraging calculation after rental expenses (A more accurate approach in my opinion, in short ROI, Return on investment approach)

Monthly rental received – $3500
Purchase price of property (Eg. a 3 bedroom unit in Sunny Spring – $900k)
Annual Rental received – $3500 x 12 = $42000
Downpayment on property(Based on 80% loan and 20% downpayment)
20% downpayment of $900K = $180K
– Stamp Duty – $21,600
 – Legal Fees – $2500
Monthly instalment for 30 years based on 1% for 1st year = $2315/mth
Passive income per month = $3500 – $2315 = $1185.

Total Investment Outlay = $204,100

Expenses of investing for the purpose of renting out the property
 – Maintenance and Sinking Fund – Assume $300 per month, 1 year = $3600
 – Property Tax – 10% per annum of annual rental income = $4200
 – Agent’s commission (Eg. 1/2 month comm for 1 year lease = $1750)
 – Cost of furnishings and repairs = Eg. $1500 per year
 – Cost of interest payments for Property for 1st year – $7100(Based on 1% interest rate for 1st year Fixed)

Total expenses = $18150

Net Surplus(Annual Rental income minus expenses) = $23850

ROI (Return on investments) = ($23850)/($204,100) x 100% = 11.68% per annum






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