Gross Rental Yield Definition

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Contributor, Benzinga
October 14, 2022

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Gross rental yield is a measure of an income property’s gross revenue in relation to the property’s purchase price. An investment property’s gross revenue is all the money it takes in from all sources in a given year. The gross rental yield is expressed as a percentage of the property’s purchase price.

Want to know more? Benzinga outlines the gross rental yield definition below and provides important information about this topic.

Gross revenue obviously includes rent, however, rent is not the limit of the potential revenue streams an income property can generate. Other sources of gross income include, but are not limited to the following:

  • Late fees
  • Security deposit interest (if owner is allowed to keep this)
  • Laundry revenue
  • Appliance rental
  • Parking fees
  • Cable fees (if an owner has a master cable or satellite antenna and charges tenants)
  • Internet fees 

Some owners even generate extra income for their properties by renting out the roof for billboards and cell phone towers. Needless to say, the more creative a property owner can be in finding income streams aside from rent, the higher the property’s gross rental yield will be. 

Gross Rental Yield Formula

Here is a simple formula to use for calculating a property’s gross rental yield.

Annual gross income ÷ Purchase price = Gross rental yield

$25,0000 Gross income  ÷ $200,000 Purchase Price = 12.5% Gross Rental Yield

Making Sense out of Gross Rental Yield

Remember, gross rental yield only measures a property’s income before expenses,( e.g. management fees, debt service, property taxes and maintenance). It’s entirely possible for a property to have a high gross rental yield and still not generate a lot of revenue because its expenses are too high in relation to the income. That’s why gross rental yield is a great metric to use when comparing different income properties; as long as it’s not the only one. At the end of the day, it’s the net profit that matters most.

Q

What is a good gross yield rental?

A

A good gross rental yield is considered to be between 7% and 8%. A 7% rental yield mean that the owner will recoup 7% of the cost of the property every year.

Q

What is the difference between gross yield and cap rate?

A

Gross yield only measures the income produced by a rental property but does not take its value into consideration. Cap rate meansure the income as well as the property’s value.

 

Q

How do you know if a rental property is good?

A

You can use varios methods to judge whether or not a rental property is good. You can look at the neighborhood, the school district, property taxes, and the job market for starters. Also, be sure to check out the area’s average rents.

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