How rental Income is calculated

Calculating rental yield allows you to see how good of an investment you are making with a particular property. Working out Gross rental income is very easy, it is simply the rent you receive. However, this does not necessarily give you a good reflection of what you will earn in real cash terms.

The figure that will tell you a more accurate figure is NET rental income, this is the rental profit left after any costs associated with you renting the property. You will need to deduct any relevant mortgage repayments if you finance your property purchase. It will need to include a deduction of the monthly fee you pay your agent to manage your property, the service charge paid to the block management company and also your annual ground rent. Below see an example for how you can use this information to work out your NET rental income.

Property Purchase Price = £100,000
Annual Rental Income = £500 per month x 12 months = £6000
Mortgage Repayments = £50 per month x 12 months = £600
Letting Management Fee @ 10% = £5 x 12 months = £60
Service charge = £25 x 12 months = £300

NET Annual Rental Income = £6000 – £600 – £60 – £300 = £5040

NET yield

Once you have worked out the NET Annual Rental Income you can now calculate the NET yield of your property. A NET yield is a percentage figure by which all investments profitability are measured so it is very important to understand this. Please see below a further example how the above figures would be calculated as a NET Yield.

Property Purchase Price = £100,000
Annual Rental Income = £6000
NET Rental Income = £5040

£5040 / £100,000 = 0.0504
0.504 x 100 = A 5.04% Yield

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