When starting real estate investment, the first thing you want to check is the “yield”.
Property advertisements often state things like “10% yield,” but it is dangerous to judge profitability based on that number alone.
In this article, we will explain the difference between gross yield and net yield using concrete numbers.
1. What is gross yield?
Gross yield is the ratio of the annual projected rental income at full occupancy to the property price.
Gross yield = Annual full-occupancy rental income ÷ Property purchase price × 100
For example,
Property price: 25 million yen
Monthly rental income: 230,000 yen
Annual full-occupancy rental income: 2.76 million yen
In this case, the gross yield is approximately 11.0%.
However, vacancies, management fees, and repair costs are not taken into account.
2. What is net yield?
Net yield is the yield that takes into account vacancy losses, operating expenses, and other costs.
For example, using the property mentioned above,
Vacancy rate: 10%
Effective annual rental income: 2,484,000 yen
Annual operating expenses: 644,200 yen
Given these figures, the annual net operating income (NOI) is 1,839,800 yen.
Assuming purchase-related expenses are 1.5 million yen, the net yield becomes approximately 6.9%.
Compared to a gross yield of 11.0%, you can see that there is a significant difference.
*The definition of net yield and the treatment of expenses may vary depending on the calculation method.
3. Don’t forget loan repayments!
If you are using a loan, you must also consider the annual loan repayment amount.
Subtracting the loan repayment amount from the net operating income is the basic concept of pre-tax annual cash flow.
For actual investment decisions, consider future large-scale repairs and taxes separately.
4. How to easily calculate income and expenditure in Excel
It is difficult to manually calculate vacancy rates, expenses, and loan repayments every time.
Therefore, I have created an Excel template that allows for automatic calculations simply by entering the property price, rent, etc.
Main Features
Automatic calculation of gross yield and net yield
Incorporation of vacancy rates and annual expenses
Calculation of loan repayment amounts
Calculation of annual cash flow
30-year income and expenditure simulation
Visualization of profits through graphs
This can be used by those considering real estate investment or those who own rental properties to check their income and expenditure.
Selling price: 980 yen
▼ Click here for product details
https://bokeno3kai.booth.pm/items/9123481
*This article and the Excel product are intended for general income and expenditure estimation and do not guarantee investment results.
