Separate gross and net rental yield
Gross yield is annual rent divided by total acquisition cost, multiplied by 100. Net yield deducts recurring owner-paid expenses and vacancy before dividing by the same cost base. Furnishing and transaction expenses should not disappear from the investment calculation.
Use comparable rental evidence
Seek recent leases for homes with similar configuration, condition, location and furnishing. An asking rent in an advertisement does not establish the amount a tenant will pay. A large multi-level home may serve a different tenant segment from nearby apartments.
Include the holding period
During construction, financing and opportunity costs can arise before rental income begins. Model different completion, vacancy and exit scenarios. Capital appreciation is uncertain, and a resale price estimate is not cash received until a transaction completes.
Keep these details in view
- Verified comparable rents
- Vacancy and owner-paid expenses
- Full acquisition and furnishing cost
- Finance costs and exit expenses