Rental yield and purchase price factor: Calculations for comparing properties

Rental yield and purchase price factor – How do I find good yield properties? This question is mainly asked by capital investors, as they are mainly looking for positive and fastest possible cash flow. With a sufficient yield, you are lucky that the tenant pays off the purchased property. Here you’ll learn all about how to earn the best rental return.

Rental yield & purchase price factor: calculations

A property can be evaluated in terms of its profitability by two factors – the rental yield and the purchase price factor. The rental yield indicates the amount of costs generated by the rental income. The purchase price factor indicates how many years one would have to pay off the property to be purchased. These two values can be used to decide which real estate offer to accept.

Here you can learn more about the calculation of rental yield and purchase price factor/

Rental yield: Does the rental income cover my costs?

The rental yield is an amount generated by the rental income of your property. This must always be checked before buying a yield property. 2 factors tell whether a property covers the monthly costs through rental income. If this is above 6%, the monthly costs are covered at current interest rates. Anything above that means additional capital accumulation for you.

A good rental yield:

From 5% upwards at current interest rates

A simple formula can be used to calculate the gross rental yield:

Annual yield (rent) / investment x 100 = rental yield

Purchase price factor: How long do I have to pay off?

The purchase price factor puts the purchase price in relation to the annual rental income. The result indicates in how many years the purchased property will be paid off. In this way, you can make a comparison between offered properties, which shows you the most profitable property.

The formula for calculating the purchase price factor is as follows:

Investment / annual net income = purchase price factor

The next step: 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 repay the principal? This is a question that capital investors in particular ask themselves when they want to invest in an income property and thus achieve efficient asset accumulation. Here you will learn everything about the minimum amount of the gross rental yield.