Minimum rental yield – How high must the rental yield be at least so that I can let my tenant pay off the purchased property without worrying about having to pay interest and repayments? This is a question that especially capital investors ask themselves when they want to invest in an income property and thereby achieve an efficient accumulation of assets. Here you will learn everything about the minimum amount of the gross rental yield.
Rental yield: What is it actually?
When you finance your purchased property and rent it out, you generate income from the tenants. The rental yield puts your investment in relation to the potential rental income.
This simple formula makes it easy to calculate the rental yield:
- Annual rent /investment x 100 = rental yield
The rental yield factor can be used to determine whether the rental income covers the interest, repayment and ongoing operating costs and whether a surplus is left over at the end for asset accumulation. In addition, this is the best way to compare yield properties on offer.
Yield and location: Dependent factors
The location is particularly important for the yield of a property. In addition, it depends on the goal as an investor whether one wants to invest in an investment or yield property.
What does it depend on?
- Location of the property
- Investment strategy/return or investment real estate
Excursus: A – B- C- location and their yields
Here we have briefly summarized the potential return for the three location types:
- Low return
- Long-term value enhancement
- Good return
- Increases moderately but steadily in value
- Very good return
- No increase in value (+ greater risk of vacancy)
Rental yield: When is it worthwhile?
Basically, the higher the return, the less I have to pay myself and the more I get paid off. Ideally, there is even a monthly surplus that can be used to build up direct assets.
Here are a couple examples of possible returns:
- Top A-location like Munich Ø Yield ~ 3 %
- A-location like Frankfurt Ø yield ~ 4 %
- Good B-location like Dresden Ø Yield ~ 5%
- B-location like Nuremberg Ø yield ~ 6 %
- Good C-location like Wuppertal Ø Yield ~ 7%
- C-location like Chemnitz Ø yield ~ 8 %
- Poor C-location like Krefeld Ø Yield ~10%
The next step: existing or new building
When buying a home, in addition to the question of owner-occupancy or capital investment and return or investment property, one wonders whether to invest in existing or new construction. Both forms have their advantages and disadvantages. In this article, you will learn what they are.
The right location: owner-occupier or capital investment?
Where exactly should I buy my first property? Owner-occupiers and capital investors, as well as yield properties or investors with the goal of value appreciation, accordingly, the decision of the perfect location is different. Here we go into the analysis again to help you find the best location for your goals!