7 Important Reasons to Use a Rental Yield Calculator for Property Investors

Are you considering investing in rental properties but unsure where to start? A Rental Yield Calculator is a valuable tool that can guide you in making smart decisions.

It helps you calculate the potential return on investment for a property, ensuring you’re not guessing but working with real numbers. Understanding how to use this calculator effectively can help you maximize profits and minimize risks.

As a property investor, your primary goal is to increase your returns. But how can you be sure you’re choosing the right property to invest in? The rental yield calculator is specifically designed to give you an accurate estimate of the income you could earn from a rental property. In this article, we’ll dive into 7 key reasons why every property investor should use a Rental Yield Calculator.

How to Use a Rental Yield Calculator for Property

A well-maintained property isn’t just a nice-to-have; it’s a must-have.

Think of it as an investment that pays off in the long run.

By keeping your property in tip-top shape, you’re making it more attractive to quality tenants who are willing to pay a premium for comfort and convenience.

To get a better idea of how much your property is worth, consider using a rental yield calculator. This tool can help you determine the potential rental income and expenses, giving you a clearer picture of your property’s financial performance. Using a rental yield calculator is easy! Here are the basic steps:

1: Input the Purchase Price of the Property

Knowing the value of your property is crucial to setting the right rental rate. As a general rule, you can aim for a monthly rent that falls between 8% and 1.1% of the property’s total purchase price.

For example, if you bought your property for $200,000, this range suggests a monthly rent between $1,600 and $2,200.

However, keep in mind that this is just a starting point. If your property is priced above $375,000, you might consider setting the rent slightly lower than the 8%-1.1% range. This can help attract a wider pool of qualified tenants and potentially fill the vacancy faster.

Unsure of your property’s current value? Don’t worry, there are options! You can:

• Hire a professional appraiser for the most accurate valuation.
• Utilize the Federal Housing Finance Agency’s house price index (HPI) calculator.
• Check online estimation tools offered by websites like Realtor.com, Trulia, or Zillow.

By using these resources alongside the purchase price, you can effectively gauge your property’s market value and determine a competitive rental rate.

2: Enter the Annual Rental Income you Expect to Earn

To enter your expected annual rental income in a rental yield calculator, you’ll typically find a field labeled: Annual Rental Income,  Expected Rental Income, and Rental Income per Year.

To do this;  Find the designated field on the calculator and enter the total amount of rent you anticipate earning from the property in one year. This should include the monthly rent multiplied by 12 but also consider potential vacancy periods. If you expect the property to be vacant for any period, estimate the lost rental income and subtract it from your total annual income.

For example, if you plan to charge $1,000 per month in rent and expect the property to be vacant for one month per year, your annual rental income would be:

• ($1,000/month * 11 months) = $11,000 per year

Once you’ve entered this information, the calculator will use it to calculate your rental yield, taking into account other factors like property value and expenses

3: Add any Additional Expenses like Taxes, Maintenance, and Insurance

When calculating rental yield, it’s crucial to account for additional expenses beyond just the mortgage, these expenses can significantly impact your property’s overall profitability.

Most rental yield calculators have a specific section for inputting additional expenses. This section typically includes fields for Property Taxes, Insurance, Maintenance, Vacancy Costs, and Management Fees.

Here’s a general process:

1. Find the Expenses Section: Look for a section labeled “Expenses,” “Costs,” or something similar on the calculator.
2. Input Data: Enter the estimated annual costs for each expense category.
3. Calculate: The calculator will automatically adjust the rental yield based on these additional expenses.

Note: Some calculators may have more detailed options for expenses, such as separate fields for utilities, repairs, and replacements. Be sure to explore the calculator’s features to ensure you’re accurately accounting for all relevant costs.

4: The Calculator will Automatically Generate the Yield Percentage

To calculate rental yield, simply input your annual rental income, property value, and additional expenses into the calculator. It will then automatically generate the rental yield percentage.

For example, if your annual rental income is $12,000, your property value is $100,000, and your annual expenses are $4,000, your net rental income would be $8,000. Dividing $8,000 by $100,000 and multiplying by 100 gives you a rental yield of 8%.

Remember, the rental yield calculator will handle these calculations for you, so you don’t need to perform them manually. Simply input the required information, and the calculator will provide the rental yield percentage.

7 Benefits of Rental Yield Calculations

Before we get into why it’s so beneficial, let’s first understand what a rental yield calculator is. It’s an online tool or software that helps you figure out how much money you can make from a rental property.

It uses factors like the yearly rent you’ll get and how much the property costs to calculate your return on investment. It’s a simple but really useful way to see if a property is a good deal or not.