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Tuesday, July 25, 2006

Rental Yield Calculation

The intention of this blog is to share my personal way of calculating rental yield. Through forum discussion, I found that there are a number of ways to derive this figure, where there is no absolute true or false. As such, it is difficult to compare the acceptable yield rate from one person to another.

My way of calculation rental yield is rather simple, which is the nett % return based on all the cost + capital that have been invested into the property. It can later be used to directly compare with inflation or % return of other investment vehicles such as fixed deposit, stock market...etc.

Below is an example to illustrate my idea:

a) Property Price = RM200,000

b) Loan Balance = RM170,000 (this is the amount of out-standing loan to bank, a-b will give you the amount of capital paid so far to bank)

c) Renovation Cost = RM10,000

d) Legal fee = RM2000 (covers both S&P and bank loan legal charges)

e) VP Payment = RM2000 (this is the total payments such as sinking fund, all types of deposit paid to developer during Vacant Possession)

f) Total Interest = RM2500 (cumulative interest that you have paid to bank so far, inclusive of interest paid during construction period)

g) Months per year with renter = 10 months

h) Monthly Maintenance fee = RM150

i) Monthly Bank Interest = RM400 (since it will reduces by month as instalment progresses, an average figure in a year will be good)

j) Yearly Tax = RM500 (this includes rental income tax, tax from Majlis Perbandaran..etc)

k) Agent fee = RM500 (for tenancy agreement of 2 years, it equals to agent fee of RM500 per year)

l) Monthly Rental = RM1000

Finally, here's the calculation:

Capital Investment = (a - b) + c + d + e + f
Yearly Nett Return = (l * g) - (h * 12) - (i * 12) - j - k
Annual Rental Yield = Yearly Nett Return / Capital Investment * 100%

I have made a javascript calculator at the sidebar for easier calculation. With example as above, the rental yield derived is 5.16%.

This may not be the perfect way for rental yield calculation as I may have overlooked certain aspects. Thus, please feel free to give me your opinion / suggestion. Please kindly use the blog comment rather than chat box as your comment can stays with this blog and this way I feel like your contribution is credited better ! Hahaa.....

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Blogger 12invest said...

Very impressive, velo. I believe your blog has covered various investment opportunities in malaysia very well.

8:23 AM  

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