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What is yield and how is it calculated?

Rental yield is a term used to describe the rental income received relative to the value of an investment property.

Determining gross rental yield allows you to compare the rental yields from two different properties with markedly different values and rental returns.

Equation for determining gross rental yield:

Annual rental return ÷ price of the property x 100

Example:
Property A
Price: $400,000
Weekly rent: $300
Gross rental yield = 3.9%

Property B
Price: $500,000
Weekly rent: $450
Gross rental yield = 4.7%

Remember gross rental yield does not take into account outgoings, capital growth potential or taxation benefits. Accordingly, gross rental yield should not be used as a single method of determining the value of an investment property.

Source: The Complete Guide to Residential Property Investment in New Zealand, published by Random House.