In simple terms, rental yield is the income you are making, or expect to make, on a property you own or are thinking about purchasing. In the case of investing with UOWN, rental yield is the income from rent that is shared between the investors.
Property investors and landlords use rental yield as a fundamental metric to monitor the value of their property investments and any portfolio of properties they have built up.
If you are thinking of investing in property, there are two ways you are most likely to earn money from your investment: rental yield is the regular income from the property, while capital growth is the value of the property you buy or invest in, increasing over a period of time. A longer term investment with UOWN could see a combination of both income streams.
How do you calculate rental yield?
To calculate an accurate rental yield you need to establish the purchase price of the property, or a current market value, and then calculate the annual rental income that you expect to receive when the property, or all individual lets within it, are rented out.
You then take the annual rental income amount and divide it by the property value or purchase price. To convert this figure to a percentage, you then multiply it by 100. This resulting percentage is your rental yield.
For example, let’s assume you have paid £100,000 for a property and your annual expected rental income is £5,000:
5,000 divided by 100,000 = 0.05
0.05 multiplied by 100 = 5
Your rental yield is 5%.
When you are making financial appraisals on a property or investment, you may hear terms such as gross and net rental yield. A gross yield is when you take just the rental income as a percentage of the property value, as in the simple example above.
However, with a net yield, you also take into account any other costs you may have such as insurance, mortgage payments, refurbishment and maintenance or known periods where the property is not let out and you have no income.
Of course, the net yield is a more accurate assessment of your expected return, but the gross yield can be used as a metric to quickly compare the viability of an investment, usually by a more experienced investor.