There’s been much talk of the pandemic and how it has affected real estate markets. Most of that has been about the losses experienced by big, expensive cities like New York City.
But one market survived the pandemic, and in fact, boomed. Unlike other cities, Baltimore didn’t see a mass exodus.
That makes it appealing for anyone looking to invest in rental property in the area.
But before you buy property in the Baltimore area, you need to understand rental yield - what it is, how to calculate it, and why you need to do the math.
Why? Because if you don’t understand rental yield, you won’t make money in any market - even Baltimore.
Here’s what you need to know about rental yield.
What Is Rental Yield?
Rental yield can be broken down into two types: net and gross rental yield.
Gross rental yield is the gross yield produced by a rental property. Over a year, the yield is the rent collected over the year, expressed as a percentage of the property’s value.
The gross rental yield is not reflective of the profits of a property. It doesn’t take into account management fees, property taxes, or other expenses.
This is different from net rental yield which does take into account expenses.
How Do You Calculate Gross Rental Yield?
First, multiply the monthly rental income by the number 12. This will give you the annual gross rental income.
Then divide the annual gross income by the market value of the property.
Multiply that number by 100. This will convert it into a percentage.
Even though gross rental yield doesn’t tell the whole story, it can be a quick way of comparing properties with different values.
How Do You Calculate Net Rental Yield?
First, find your expenses. Add up a year’s worth of expenses. Property taxes, landlord insurance, real estate agent fees, property repair costs, and any other fees should be added together.
Multiply the monthly rental income by 12 like you would for gross rental yield.
Then subtract the annual expenses from the annual gross rental income.
Finally, divide that number by the market value of the property.
Calculating the net rental yield of a rental property can give an investor an idea of how much money to set aside for expenses. It can give a greater insight into an investment property.
What Is a Good Rental Yield?
What is a good rental yield number? That depends on the investor and their level of risk tolerance. However, generally speaking, 5% is a good starting number.
A newer home will generally require less maintenance and repair. An investor who is risk-averse may want to spend more on a newer property in an effort to avoid costly repairs.
A rental property may have a high rental yield but also have high expenses. That means the return on investment would be lower than expected.
How Can You Increase Rental Yield?
If your rental yield is low, it’s possible to increase it. One way is by monitoring the local rates and ensuring your rates are at market.
You can also allow pets to increase your potential pool of renters. It will also generate additional revenue from pet fees.
Finally, you can hire a local property manager who understands the market. They can be proactive when it comes to property maintenance, and catch problems before they become serious. They can also help screen tenants and minimize vacancy rates.
Looking for Help With Your Baltimore Property Investment?
Now that you know the importance of rental yield and how to calculate it, you may be looking at investment properties in Baltimore and trying to determine how to maximize your rental yield.
That’s where we can help. We can safeguard your investment, find qualified tenants, and protect your revenue.
Find out how by getting your free rental analysis today.