Rental Yields Made Easy

It’s no secret that rent is a large cost of living and in turn, having a rental property can be a revenue-generating asset. So whether you are a seasoned landlord or just looking to into buying your first rental property, we have a made a simplistic rundown of rental yields, how to calculate it and what all the numbers mean.

What is rental yield?

Starting off with the basics, rental yield is how much money a revenue-generating asset produces each year as a percentage compared to the assets overall worth.

An example is a rental home with an HomesEstimate of $450,000.

Average RentEstimate of $450 per week multiplied by 52 weeks,
Dived the sum by $450,000 as the average estimated value and that sum is the yield.

Gross Yield vs Net Yield

Gross Yield

Gross yield is the amount of raw revenue that is generated before any deductions such as income tax, property maintenance, rates, insurance etc.

Net Yield

Net yield is the total you take away after all costs and bills are paid for. The amount of profit you are making from the rental property per year.

Best rental yield locations in New Zealand

For any interested landlords, the Auckland house prices may have hurt your hopes of buying a rental property, but we’ve got some good news.

Whether you consider yourself prospective or a pro, the highest yield areas are in Christchurch. With a 5.3% annual
gross yield on average and a top end of 6.8%. Christchurch is sitting on a 1.7% higher annual gross yield than Auckland.

Christchurch house prices are less than half the price of Auckland with average Christchurch house prices sitting at $452,608.


Why yields are important

Because of this magic little equation

Total Return = Net Rental Yield % + Expected Capital Growth %

Rental yields are therefore a key ingredient in the total return an investor or homeowner can expect from a property.
The other half of the equation above is the expected capital growth in the value of the property.  The trouble with relying on capital growth for all of your returns is that it is much harder to predict what the value of an investment is going to do in the future.
The advantage of relying on rental yields for your returns is they are much easier to predict once you have all the facts, and the rental yield means cash in the bank not just paper profits.
So using rental yields helps you to weigh up buying specific homes, compare and contrast different areas and get a handle on how quickly an investment will turn into cash in your bank account.
The rental yield is also a useful percentage to compare against the interest rate you might be facing for an investment – the higher the rental yield the easier it will be to pay any borrowing costs for the investment.
So if you are curious about our RentEstimate and the yields a property can potentially bring, try looking in different locations and the the RentEstimate to get an idea of the possible cash returns on your investments.
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