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.
What is a good gross yield rental?
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.
What is the difference between gross yield and cap rate?
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.
How do you know if a rental property is good?
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.
About Eric McConnell
Eric McConnell is a real estate writer with a years-long passion for the real estate industry and the desire to help everyday people learn more about real estate investing. He is a graduate of Pepperdine University, where he earned a BA in journalism.
After graduating, Eric embarked on a career in real estate where he spent over a decade as an agent for multi-family and commercial properties in Los Angeles. In his career, he’s worked on almost every side of a real estate transaction. He has represented buyers, sellers, property owners and renters and served as manager for commercial and residential properties.
In 2019, Eric started sharing his experience with the wider world as a writer. He got his start writing and editing real estate lessons for prospective licensees before joining Benzinga in 2021. Since then he has written a variety of real estate material ranging from investment platform reviews to covering and analyzing breaking news in the real estate industry. His work has been published by Yahoo News on numerous occasions.
