Before you jump into the investment property market, you must determine what you will ultimately make out of the deal. This return is sometimes called investment property yield or real return. 

The yield of an investment property considers the rental income generated by that property and the capital amount used to purchase the property. The rental income that a property can generate is dependent on factors such as the location, the condition of the property, and the current market environment in respect of the rental property. 

Taking all of the above into account, we can do a simple calculation to determine the overall yield of the investment property.  

Total annual income from the property ((Monthly rental minus monthly levies) x 12) divided by the purchase price, which will give you a percentage.

In practice, the calculation will look like this:

Monthly rental = R5 500

Monthly levies = R1 500

Monthly income = R4 000

Per year (x 12) = R48 000

Purchase price = R500 000

Yearly income (R48 000) / Purchase price (R500 000) = 0/096 * 100 = 9.6% yield

A good rental yield to aim for is between 5-8%.

However, this is where many property investors get caught out as several other factors affect the yield of rental property that should be considered when calculating the real return. 

We will discuss these factors in our next article.