Rental Yield Calculator: Maximise Rental Yield [Proven Ways]

If you are going to buy a property for the first time, there are two metrics that you need to understand. The first is the Cap rate and the second is the yield.

While the Cap rate is the return on property investment, rental yield is the return on investment on a rental property. Or in other words, Rental yield is a measure of how much money you can make from renting out a property.

In this article, we are going to discuss the importance of rental yield in real estate investing. We are also going to learn how to calculate and analyse rental yield to make informed investment decisions.

Definition of Rental Yield: How to Calculate Rental Yield of Your Property

The Meaning of Rental Yield: The phrase Rental yield refers to the annual rental income of a property about its value. It is calculated by dividing the annual rental income by the property's value and multiplying it by 100. 

Rental Yield =Annual Rental IncomeProperty Value100

For example, if a property has an annual rental income of ₹10 Lakhs and a value of ₹1 Crore, 

Rental Yield =10 lakhs1 Crore100

—which will be 10%. 

A higher rental yield indicates a better investment as it means the property is generating a higher return on investment. 

How to Calculate Rental Yield?

Calculating rental yield is an essential step for both seasoned investors and first-time buyers in the real estate market. Rental yield helps you understand the potential return on your investment property and assists in making informed decisions. Here, we will guide you through the process of calculating rental yield and provide insights into its significance in the Indian real estate market.

Steps to Calculate Rental Yield:

• Determine the annual rental income generated by the property.
• Find the current market value of the property.
• Divide the annual rental income by the property value.
• Multiply the result by 100 to get the rental yield percentage.

To calculate rental yield, you need to follow a simple formula:

Gross Rental Yield = (Annual Rental Income / Property Value) x 100

This formula allows you to determine the percentage return on your investment based on the annual rental income generated by the property and its market value.

Two Types of Rental Yield Calculation

There are two primary types of rental yield calculations:

• Gross Rental Yield: This calculation considers the total rental income generated by the property, ignoring any expenses or costs associated with owning and managing the property. It provides a general overview of the property's potential return before factoring in expenses.

• Net Rental Yield: Net rental yield accounts for the property's expenses, including maintenance costs, property taxes, insurance, and management fees. It provides a more accurate representation of the property's profitability.

Both types of rental yield calculations serve different purposes and help investors assess the financial viability of their investment properties. While gross rental yield is useful for initial analysis, net rental yield offers a more realistic picture by considering expenses.

5 Factors that Affect Rental Yield

1. Property Location

Properties located in desirable areas such as major cities or near commercial hubs tend to have higher rental yields than properties located in less desirable areas. 

For example, a flat in a prime location such as South Mumbai's areas like Colaba or Marine Drive is likely to have a higher rental yield than a flat in a relatively remote area like Mulund or Borivali.

2. Property Type and Size

Different types of properties, such as single-family homes, apartments, or duplexes, can also affect rental yield. 

Properties that are too large or too small for the local market may have lower rental yields. 

For example, the rental yield in Bangalore’s Whitefield for a large bungalow may be lower than that for a small apartment in a prime location like Indira Nagar due to lower demand for large properties in the former area and higher demand for smaller properties in the latter area.

3. Management, Maintenance and Upkeep

Proper maintenance also helps attract better tenants, and retain tenants and will result in higher rental yield. 

A property that is managed effectively, with regular maintenance and prompt repairs, is likely to have a higher rental yield than a property that is poorly managed. 

If your property is managed by a property management company with a good track record for timely maintenance and repairs, then it is likely to have a higher rental yield than a property in the same area that is self-managed with a history of delayed maintenance and repairs.

Similarly, a property with modern amenities is likely to have a higher rental yield than an older property. The older property will require more maintenance and repairs, which can increase operating expenses and decrease rental yield..

4. Tenant Profile

The type of tenants that a property attracts can also have an impact on rental yield. Properties that attract long-term, reliable tenants will generally have a higher rental yield than those that have a high turnover rate.

For example, a property in a prime location like Indira Nagar, in Bangalore that is occupied by long-term, corporate tenants is likely to have a higher rental yield than a similar property in the same area that is occupied by students or short-term renters. 

Long-term tenants tend to take better care of the property and are less likely to cause damages or disruptions, which can help to reduce expenses and increase rental yield.

5. How Government policies Impact Rental Yield

Certain state government laws such as Maharashtra's Rent Control Act, 1999 and Delhi's Rent Control Act, 1995 limit the amount of rent landlords can charge, which can impact rental yield. 

Additionally, tax incentives for rental property owners such as Section 80GG of the Income Tax Act, 1961 allow for a deduction of rent paid for self-occupied property. 

Similarly, the Pradhan Mantri Garib Kalyan Yojana (PMGKY) offers a lower tax rate for declaring undeclared income—all these can affect your rental yield.

It's important to take all these factors into account when evaluating rental yield, as they can have a significant impact on the return on investment. By understanding these factors and how they impact rental yield, investors can make more informed decisions and optimise their investment performance.

Rental Yield Comparison for Different Types of Rental Property

Single-Family homes

Generally, single-family homes have higher rental yields than apartments as they offer more privacy and space. Single-family homes also tend to have a better resale value in comparison to apartments. 

However, they also tend to have higher operating costs, such as maintenance, repairs, and insurance. Single-family homes also require more management and involvement of the landlord.

Apartments

Often, Apartments have lower operating costs and are more convenient for renters. 

They are ideal for people who want to live in densely populated areas with easy access to public transportation and amenities. 

Apartments also tend to have lower maintenance costs and are easy to manage. However, they tend to have lower rental yields than single-family homes, as they are typically smaller and less private. 

Apartments also have association fees which can add to the costs of the landlord.

Multi-unit buildings

These units can offer strong rental yields, as they allow landlords to rent out multiple units at once, which can help to offset the costs of ownership. 

They are ideal for investors who want to generate more revenue. However, managing multiple tenants and units can be more complex than managing a single-family home or apartment. Multi-unit buildings also require more management and involvement of the landlord. They also have higher maintenance costs. Reselling the property might become a challenge too.

Townhouses

Townhouses are similar to single-family homes, but they are attached to another unit and share a wall.  They offer more privacy and space than apartments but fewer maintenance costs than single-family homes. 

Townhouses also tend to have a better resale value than apartments. However, they also tend to have higher association fees and are less private than single-family homes.

Vacation homes

Vacation homes can be a great source of rental income when not in use by the owner. 

They are typically located in tourist areas or vacation destinations. They can offer higher rental yields than long-term rentals but require more management and maintenance. 

They can also have periods of low occupancy and may not be as good of an investment in certain areas or during certain times of the year.

Here’s a quick summary of the key factors to consider for various types of rental properties–

Property Type	Pros	Cons
Single Family Homes	Higher rental yields, better resale value	Higher operating costs, more management and involvement required
Apartments	Lower operating costs, easy to manage	Lower rental yields, association fees
Multi-unit Buildings	Strong rental yields, multiple units to rent out	Complex management, higher maintenance costs, difficult to resell
Townhouses	Better resale value than apartments	Higher association fees, less private than single-family homes
Vacation homes	Higher rental yields than long-term rentals	Requires more management and maintenance, periods of low occupancy.

Rental Yield in Top Cities - Bangalore, Mumbai, Chennai, Hyderabad, Delhi, Kolkata

City	Gross Rental Yield (%)	Net Rental Yield (%)
Bangalore	3-5	2.5-4
Mumbai	2-3	1.5-2.5
Chennai	3-4	2-3.5
Hyderabad	4-5	3.5-4.5
Delhi	3-4	2.5-3.5
Kolkata	3-4	2.5-3.5

Understanding rental yield trends in major cities is crucial for investors looking to maximize their returns. Here is a snapshot of rental yield in some of India's top cities:

• Bangalore: Known as the Silicon Valley of India, Bangalore offers a vibrant real estate market with strong rental demand. Rental yields in prime areas such as Koramangala, Indiranagar, and Whitefield range from 3% to 5% on average.

• Mumbai: Mumbai's real estate market is known for its high property prices and rental rates. However, rental yields in Mumbai tend to be lower compared to other cities, averaging around 2% to 3% due to the high cost of property acquisition.

• Chennai: Chennai offers a balanced real estate market with reasonable property prices and rental rates. Rental yields in areas like Velachery, OMR, and Anna Nagar range from 3% to 4%, making it an attractive investment destination.

• Hyderabad: Hyderabad has emerged as a thriving IT hub, driving the demand for rental properties. Rental yields in areas like Gachibowli, HITEC City, and Madhapur average around 4% to 5%.

• Delhi: The rental market in Delhi is diverse, with varying rental yields across different neighbourhoods. Areas like Dwarka, Saket, and Vasant Kunj offer rental yields ranging from 3% to 4%.

• Kolkata: Kolkata's real estate market is characterized by affordable property prices and steady rental demand. Rental yields in areas like Salt Lake City, Rajarhat, and New Alipore hover around 3% to 4%.

By analyzing rental yield trends in these cities, investors can identify locations with higher potential returns and make well-informed decisions when purchasing rental properties.

When calculating rental yield, it is essential to consider factors such as location, property type, prevailing rental rates, and market conditions. NoBroker, India's leading prop-tech platform, offers a rental yield calculator in India that simplifies the process for investors. With the best rental property calculator provided by NoBroker, you can quickly evaluate the rental yield of properties and make informed investment decisions.

Optimising Rental Yield: The Right Property Size for Your Market

The size of a rental property can affect not only the rental income but also the operating costs and the appeal to potential tenants.

In areas with high demand for rental properties, larger properties may be more desirable and able to command higher rents. For example, in a city like Bangalore, a 3 BHK flat may be more in demand than a 2 BHK flat, and therefore, may have a higher rental yield. 

At the same time, in an area with a higher population density, it might be a smart idea to build a complex with multiple 1BHKs or smaller 2BHKs as this will reduce maintenance costs.

To determine the optimal size of a rental property, it's important to research the local market conditions and demand for different property sizes. This can be done by analysing data on rental prices, vacancy rates, and population density, as well as talking to local real estate agents and property managers to get an understanding of the local market.

How to Boost Your Rental Income through Effective Property Management

Effective property management is crucial for maximising rental yield, as it can help to minimise expenses and increase rental income. 

Here are some Proven strategies that you can implement to maximise rental income—

3 Tips for setting the right rent price for a property

1. Research local market conditions: Understand the local market conditions, such as the median rent for similar properties, to ensure that you are pricing your property competitively.
2. Take into account the property's condition and amenities: Properties in better condition or with more amenities, such as a pool or a garage, can command higher rents.
3. Consider the target tenant: Consider the type of tenant you want to attract and tailor your rent price accordingly.

4 Strategies for reducing vacancy rates and increasing occupancy

1. Offer incentives: Offer incentives to attract tenants, such as reduced rent for signing a long-term lease or waived application fees.
2. Utilise online marketing: Use NoBroker to advertise your property and reach a wider audience.
3. Provide excellent customer service: Be responsive to tenant inquiries and address any issues or concerns promptly to increase tenant satisfaction.
4. Network with other landlords: Network with other landlords to learn about potential tenants who may be looking for a new rental property.

5 Ways to improve the value and appeal of a rental property

1. Make upgrades and repairs: Make upgrades and repairs to improve the condition of the property and make it more appealing to potential tenants.
2. Improve curb appeal: Improve the exterior of the property to make it more attractive to potential tenants.
3. Add amenities: Add amenities such as a pool or a garage to increase the value and appeal of the property.
4. Stage the property: Stage the property to make it more appealing to potential tenants.
5. Regularly maintain and clean the property: Regularly maintain and clean the property to ensure it is always in good condition for potential tenants.

Calculating rental yield is an important aspect of evaluating a rental property investment. 

The key factors that affect rental yield include property location, type and size, management, taxes, and government policies. 

It's important to consider both short-term and long-term factors when evaluating rental yield, as well as to take into account the local market conditions and demand. 

Always make sure that your investment decisions are backed by solid data and research. A comprehensive data drive research can guarantee a better rental yield.

NoBroker can help first-time landlords, investors, property managers, and financial advisors navigate the complexities of calculating rental yield. Our platform provides data and tools to optimise rental yield and align with long-term financial goals.

Contact NoBroker today to learn how our platform can assist you in making informed decisions and reaching your financial goals. 

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