15-20% of mortgages in Switzerland reflect the need to commit to a rental investment project.
Real estate is considered a safe haven that needs to be understood, especially in terms of calculating a property yield.
Indeed, rental yield helps you compare properties and cities where value for money is a component of the projection of your future rental income.
Calculating gross and net rental yields is therefore an ideal way of estimating the value of a property or the market in a given locality.
Of course, the higher the percentage yield, the more profitable the investment.
Despite the National Bank’s rate hike, real estate is a stable and attractive source of investment.
Demand typically outstrips supply, but real estate is still seen as a secure investment.
Real estate yields are generally stable and represent a tangible response to economic fluctuations.
Investing now seems more advisable to create a legacy or generate additional income.
Calculating rental yield
To calculate the rental yield, you need to measure the ratio of the rental income to the purchase price.
How do you calculate gross rental yield?
The gross rental yield is calculated as follows: 100 x (monthly rent x 12) / property price
For example, if the purchase price of a home is £300,000 and the estimated monthly rent is £1,000,
therefore,
the gross rental yield would be 100 x (1,000 x 12) / 300,000, i.e., 4%.
How do you calculate net rental yield?
Take the gross rental yield of your property, and subtract all the charges relating to your purchase and rental management, such as :
- Expenses,
- Taxes.
To be more precise, the calculation of the net rental yield involves removing :
- Condominium charges,
- The cost of repairs,
- Property tax,
- Interest on the loan,
- Agency fees.
Thus, the rental yield net is equal to 100 x (monthly rent – charges – property tax – taxes x 12) / property price (purchase price + notary fees + agency fees)
Taking rental vacancy into account
Before confirming your investment, find out about vacancy times in your chosen city.
A high return rate in a city can be appealing, but if the rental vacancy rate is also high, it may not be profitable.
Want to find out more? Read our article “Diluting the risk of rental vacancy in participative real estate investments”
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As we have seen in this article, there are a number of criteria to consider when learning, how to calculate a property yield?
Other components would be risk assessment and indicators such as attractive areas and proximity to transport, shops and schools, for example.
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