Calculating Rental Yield and ROI

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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 property 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 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.


For more guides on property buying, you can visit the following pages:


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