What Is Rental Yield?
Rental yield is one of the most important metrics in property investing. It tells you how much income a property generates relative to its purchase price. Think of it as the "interest rate" your property pays you.
There are two types of rental yield you need to know:
Gross Rental Yield
This is the simplest calculation. You take the annual rental income and divide it by the property's purchase price, then multiply by 100.
Formula:
Gross Rental Yield = (Annual Rental Income / Property Price) x 100%
Example:
You buy a condo in Mont Kiara, KL for RM 600,000. You rent it out for RM 2,500/month.
- Annual rent = RM 2,500 x 12 = RM 30,000
- Gross yield = RM 30,000 / RM 600,000 x 100% = 5.0%
That is a solid gross yield for the Malaysian market. Generally, anything above 4% is considered decent in KL, while yields in the US typically range from 4% to 8% depending on the city.
Net Rental Yield
Net yield is more realistic because it accounts for expenses. You subtract annual costs from rental income before dividing by the property price.
Formula:
Net Rental Yield = ((Annual Rental Income - Annual Expenses) / Property Price) x 100%
Example (same property):
- Annual rent: RM 30,000
- Maintenance fees: RM 3,600/year (RM 300/month)
- Quit rent & assessment: RM 500/year
- Insurance: RM 400/year
- Repairs fund: RM 1,500/year
- Total expenses: RM 6,000
Net yield = (RM 30,000 - RM 6,000) / RM 600,000 x 100% = 4.0%
See how it dropped from 5% to 4%? That is exactly why net yield matters more than gross yield.
What Is a Good Rental Yield?
| Market | Gross Yield Range | Considered Good |
|---|---|---|
| Kuala Lumpur | 3% - 6% | Above 4.5% |
| Penang | 3% - 5% | Above 4% |
| Johor Bahru | 4% - 7% | Above 5% |
| US (average) | 4% - 8% | Above 6% |
| London, UK | 2% - 5% | Above 3.5% |
Why Rental Yield Matters
Rental yield helps you compare properties on an apples-to-apples basis. A RM 300,000 apartment generating RM 1,500/month rent (6% yield) is a better income producer than a RM 1,000,000 condo generating RM 3,000/month (3.6% yield), even though the condo earns more in absolute terms.
Always calculate rental yield before you buy. It is your first filter for identifying profitable rental properties.