How To Calculate Rental Yield And Return On Investment (ROI)

PropertyGuru Editorial Team
How To Calculate Rental Yield And Return On Investment (ROI)
Finding the right property whether it is a subsale or brand new development, will take up a lot of time and effort.
It involves understanding your affordability level, but when you finally pinpoint one, it’s likely you’re going to have to take a home loan from a bank.
If you’re an investor, leveraging on such monies can help you multiply and increase your investment returns to build long term wealth.
So how do you calculate your return on investment (ROI)? There are two components to this:

1) Rental Yield Per Annum

Percentage return of rental income from the property excluding the expenses incurred from property maintenance against the total purchase price of the property.
Here is an example on how to calculate this; let us assume you purchased a property for RM750,000 inclusive of all related costs. You receive rental income of RM4,800 per month and incur total expenses of RM6,400 per year to maintain your property.
Thus, the Gross Rental yield is calculated as:
RM4,800 x 12 = RM57,600 per annum rental income
(RM57,600 / RM750,000) x 100 = 7.68% per annum
The Net Rental Yield is calculated as:
(RM57,600 – RM6,400)/RM750,000 x 100 = 6.83% per annum
If you take an interest-only loan of RM500,000 to finance your property and the financier levies an interest of 6% per annum fixed for the entire financing tenor, then the loan will be repaid on its financing maturity or when the property is sold if that occurs earlier.
Annual interest rate is RM30,000.

2) Net Leveraged Rental Yield

This method takes your property financing in account when calculating the rental yield.
Your capital cost is the difference between your purchase price and your borrowing, for example, RM750,000 – RM500,000 = 250,000.
This is calculated as (RM57,600 – RM6,400 – RM30,000)/RM250,000 x 100 = 8.5% per annum.
Relevant Guides:
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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