Gross and net rental yield after real property tax and running costs.
Net rental yield
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Gross yield
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Annual rent
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Annual real property tax
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Gross yield, then the number that matters
Property listings love to quote yield because a single percentage makes one investment look comparable to another. The trouble is that the headline figure, gross yield, ignores everything it costs to keep a unit rented. Gross yield is simply the annual rent divided by the purchase price. Net yield is the figure that actually tells you how hard your money is working, because it strips out the running costs first, including the real property tax, association dues, repairs, and any management fee. This calculator shows both so you can see how much the costs drag the return down.
It is built for an investor sizing up a condo or a house and lot before committing capital. The real property tax it nets out is modelled at a 20 percent residential assessment level with a combined basic and special education fund charge, the rate this calculator applies, which you should confirm with the city or provincial treasurer where the property sits, since local rates and assessment levels vary.
From PHP 264,000 of rent to a real return
Take the default unit: a PHP 4,000,000 purchase, PHP 22,000 a month in rent, PHP 36,000 a year in other costs, and a PHP 4,000,000 fair market value for the real property tax. The annual rent is PHP 264,000. Here is how the two yields fall out, using the rate this calculator applies for the property tax.
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The gross 6.60 percent looks healthy, but once PHP 60,000 of yearly costs come off, the net yield settles at 5.10 percent. That gap of 1.5 percentage points is the difference between the number a broker advertises and the return you actually pocket. The chart shows how the annual rent divides into costs and the income you keep.
What belongs in the costs box
The other annual costs field is where a realistic net yield is won or lost, so resist the urge to leave it thin. For a condo it should capture association dues, which are often the largest single line, plus insurance, minor repairs, and a management fee if you are not self-managing. For a house and lot you might swap dues for higher maintenance and security. A frequent mistake is forgetting vacancy. If a unit sits empty for a month between tenants, your real rent collected is closer to eleven months, not twelve, so a cautious investor shaves the rent or pads the costs to reflect that. The real property tax is handled separately by the FMV field, so do not double count it inside the costs box.
Reading the yield against the price
A higher net yield means more income for every peso of purchase price, which is why yield is a sharper screening tool than rent alone. Prime city condos in the Philippines often show gross yields around 5 percent to 7 percent, with net yields landing a point or two lower after dues and the amilyar. If a listing boasts a yield far above that range, look hard at whether the rent is realistic or the price is suspiciously low. And remember that yield says nothing about appreciation. A modest yield can still be a fine investment if the area is growing, while a high yield in a stagnant market may not be.
Does this net yield account for the income tax on the rent?
No. The net yield here subtracts running costs and the real property tax, but not the income tax you owe on the rental income. That income tax depends on which method you elect and your other income, so it is handled by a separate calculator. Your after-tax return is therefore a little lower than the net yield shown.
Should I base the yield on the price I paid or today's value?
Use the price you actually paid if you want to judge the original purchase, since that is the capital you committed. If you want to know whether to keep holding the property, recompute against its current market value, because that is the money you could free up by selling. The two can differ a lot after years of appreciation.
Why is the real property tax entered separately from other costs?
Because the tool computes it for you from the fair market value, applying an assessment level and the local rate, rather than asking you to look it up. Keeping it on its own line means you only enter the dues, repairs, and fees in the costs box, and the calculator avoids charging the property tax twice.