Tuesday, February 19, 2008

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How to Calculate Rental Yield

The following formula shows how to calculate rental yield accurately by taking into all costs that are often overlooked:

Rental yield in %=
(Net Annual Rent Collected / Total Cost of Property) x 100 %

(Net Annual Rent Collected = Total Rent Collected - maintainence cost, property tax, property agent cost, income tax, vacant cost etc)

( Total Cost of Property = Price of Property + Stamp Duty + Legal fees + Renovation + furnishing)

Example (assuming no mortgage):
If you bought a property for $600,000 (inclusive of all costs), you rent it for $2000/month and your monthly maintainence is $200, agent fee is 1 month's rent, amortised furnishing cost is $500/year (i.e. you spend $5k on furnishing and expect it to last for 10 Years so amortised cost = $5000/10 years), property tax (10% of annual value) is $2400, and assuming other costs to be negligible, we have:

Net Annual Rent Collected in $ = $2000x12 - ($200x12 + $2000 + $500 +$2400) = $16,700

Rental Yield = ($16,700/$600,000) x 100 = 2.78% ~ 3%

If the mortgage rate is 3%, then rental yield will just be about enough to pay for your mortgage interest (only).

May also want to read:
How to Calculate Property Tax for Singapore Property
Singapore Property History
How to calculate Stamp Duty for Singapore Property


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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

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