Gross Rental Yield (GRY)  

When evaluating an investment property, using rental metrics and analytics is crucial for making informed decisions. Metrics provide a clear picture of a property’s current or potential financial performance, helping investors gauge profitability and mitigate risks. Gross rental yield is one metric that can help investors optimize their portfolios, ensuring they make the most out of their real estate ventures.  

What is Gross Rental Yield? 

Gross rental yield (GRY) is a metric that helps real estate investors determine the potential profitability of a rental property. It is the total rent collected from a property relative to its current market value or purchase price, before accounting for operating expenses and debt coverage (the metric that does account for operating expenses is net rental yield). 

GRY can be used to determine whether a potential investment is worthwhile and may help landlords determine a rent amount that balances return on investment with competitive market rates. 

Gross Rental Yield Formula 

The formula to calculate gross rental yield is as follows: 

Gross Rental Yield = (Gross annual rent / Current market value) * 100

As you can see, GRY is calculated based on two inputs, your gross annual rent and the current market value of your property. Gross rental yield is expressed as a percentage that shows the ratio of your rental income compared to the property value. 

It is important to note that significant values such as maintenance costs, your monthly mortgage payment, and other operating expenses are not considered in this equation, and this formula accounts only for profitability before those expenses are paid. To calculate rental yield that does account for property expenses like insurance, property management fees, repair costs, etc., you’d have to subtract those from your gross annual rent first. 

When to Use Gross Rental Yield 

If you are a real estate investor who is interested in buying your first rental property or expanding your portfolio, calculating estimated gross rental yield is a great filter to make sure you are only investing in properties that are most likely to make you a reasonable profit. Using a gross rental yield calculator, you can also adjust your gross annual rent variable to see what rental price might make you most likely to increase your GRY while staying competitive and marketable. 

How to Use the Gross Rental Yield Calculator 

Innago’s gross rental yield calculator is designed to be straightforward and easy to use. However, it is important that you carefully consider the two variables you are inputting into the calculator so that you can get as accurate a result as possible. Let’s take a look at the formula’s different variables. 

Inputs 

As mentioned above, the GRY formula has two variables: 

1. Gross annual rent 
2. Current market value 

Gross annual rent is the total amount of rent collected from tenants of a property throughout the year. Since this formula considers a single property, it only includes the gross rent amount for one rental property you’re looking at. It’s also important that any expected vacancy loss is accounted for and subtracted from the gross amount. You can do this by multiplying your monthly rent rate by the number of months you expect your property to be occupied (or weekly rent by number of weeks, etc.) and subtracting that from your expected annual rent.

Current market value is how much the property is currently worth on the market. This could be equivalent to the property purchase price, but not necessarily. Market value can be estimated based on the listing, a property appraisal, or through a comparative market analysis of similar properties in the area. It is important as an investor to be aware that markets are constantly changing. For a better result in this formula, it is best practice to avoid relying on old information about prices in the area. 

Output 

As we mentioned earlier, your gross rental yield will take the form of a percentage representing the ratio of the income a property can generate compared to its market value. 

How to Interpret Your Gross Rental Yield 

What is a good rental yield?  

The answer to this question is ultimately subjective and influenced by market factors and risk tolerance. However, according to Roofstock, many investors generally benchmark a “good” gross rental yield at around 6-7%. This might indicate that the annual rental income you could generate from the property is appropriate compared to the property’s market value.  

Keep in mind that this is an estimate that does not consider all your overhead costs. However, GRY can still be an effective predictor of a profitable investment over time.  

Conclusion 

There is much investment of money, time, and effort that goes into starting and maintaining a real estate business. Innago’s gross rental yield calculator is one way we can help you focus your attention on only the best and most lucrative real estate investments.