Gross and net rental yield on an investment property.
Net rental yield
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Gross yield
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Annual rent
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The one number that tells you if a rental works
Before you fall in love with a flat or a townhouse as an investment, yield is the cold metric that tells you whether the rent justifies the price. It is simply the annual rent expressed as a percentage of what the property cost or is worth. A high yield means the rent works hard relative to the capital tied up, a low yield means you are paying a lot for a modest income stream. This calculator gives you two versions, gross and net, because the gap between them is where many would be landlords get caught out.
Gross versus net, and why the gap matters
Gross yield divides the annual rent by the property value and ignores everything else. It flatters the property. Net yield first subtracts the annual running costs, the rates, levies, insurance and maintenance, before dividing by the value, so it reflects what actually reaches you. The difference can be large, especially in sectional title schemes where monthly levies eat into the rent. Importantly, this tool deals in pre tax cash flow only, there are no SARS rates in the calculation, the tax on the profit is a separate step handled by a rental income tax calculator.
A R1.8 million flat, gross and net
Take a flat worth R1,800,000 letting at R14,000 a month, with R36,000 of annual costs. The tool annualises the rent and runs both yield figures.
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The headline 9.33 percent gross looks strong, but after R36,000 of costs the net yield is 7.33 percent, two full percentage points lower. That two point gap is the cost of ownership the glossy listing never mentions, and it is the figure you should actually compare against your bond rate and other investments.
What yield deliberately leaves out
Yield is a snapshot of income, not a full investment verdict. It ignores capital growth, the appreciation in the property's value over time, which in many South African suburbs is a big part of the total return. It also ignores financing, so a property bought with a bond behaves very differently from one bought cash, because the interest changes your actual cash flow. And it ignores vacancy, the weeks between tenants when rent stops but levies do not. A practical tip: knock a realistic vacancy allowance, say a month a year, off your rent before trusting the net yield, because a property that is empty for two months is not earning its headline figure.
Who should lean on this, and a common trap
This is for anyone weighing a buy to let purchase, comparing two properties, or deciding whether to keep a flat as a rental rather than sell. The common trap is comparing a gross yield on one property with a net yield on another, or against a bank's net interest rate, which is never apples to apples. Always compare like with like, and remember net yield is the honest number. If the net yield sits well below what a fixed deposit pays, the property only makes sense if you expect meaningful capital growth.
Is this yield before or after tax?
Before tax. The net yield here subtracts running costs but not income tax, because tax depends on your personal marginal rate and your other income. Once you know the net rental profit, the tax is worked out separately by adding it to your other income, which a rental income tax calculator handles. Treat this yield as the property's operating return, then layer tax on afterwards.
Should I use the purchase price or the current value?
Use the current market value if you want to know whether keeping the property still makes sense today, since that reflects the capital you could free up by selling. Use the original purchase price if you are measuring the return on what you actually paid. Both are valid, they answer different questions, so pick the one that matches the decision you are making and stay consistent when comparing properties.