# Rental Yield Calculator

Written by:
PK

On this page is a rental yield calculator. Enter the expected monthly or annual rent, plus the home or other asset or building's price, and the tool will compute the rental yield.

## What is the rental yield?

The rental yield compares the annual amount of rent an asset will demand to its final price, and computes a yield on the overall cost of an asset. It's the inverse of the price to rent ratio.

Generally, you use the annual rent to compute the rental yield, although in some specific situations monthly rent becomes important. The "1% rule of real estate" states that a building, home, or asset that rents for 1% of its total price is a good deal.

### Rental Yield Formula

The rental yield formula is:

rental\ yield=\frac{rent}{asset\ price}

Where:

• Rent - the annual amount of rent for someone to use the asset.
• Asset Price - the total price to purchase some asset, whether real property or virtual.

### Limitations on Rental Yield

The limitations of the rental yield are equivalent to those on the price to rent ratio

Ratios such as the capitalization ratios which use the NOI, or Net Operating Income, factor in both additional sources of income such as laundry or vending machines, along with typical annual expenses. Rental Yield only looks at one source of revenue and neglects to factor in expenses.

Additionally, NOI and Rent based metrics do not fully capture the expected return on investment. Since down payments can be much less than an asset's total price, the debt used to purchase an asset affects the investment's total return.

Finally, while yields and ratios let you compare assets quickly, they don't account for the assets' quality or global conditions. Assets might need many capital expenditures, be exposed to many natural disasters, or be at greater risk of crime. Global market conditions might mean all assets are overpriced, making some assets look better than they otherwise would.

In general, ratios and yields are just the first part of the story. It's up to you to model the rest.

### PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

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