How to read a rental yield

Sellers and brokers often say an apartment “rents at 5% a year”. That figure is usually the gross yield. What actually reaches you after a year of letting is less, and this guide shows how to work it out. The examples use Vietnamese dong (VND) and Vietnam’s purchase costs.

Gross yield

Gross yield is one year’s rent divided by the price.

Say an apartment costs 3 billion VND and rents for 12 million VND a month. A year’s rent is 144 million. The gross yield is 144 million divided by 3 billion: 4.8%.

It is quick to work out and fine for a first filter, but it assumes the home is let all twelve months and costs you nothing.

Net yield

Net yield takes off what you actually spend:

• Empty months: time without a tenant, or spent finding a new one.
• Management fees, and maintenance and repairs over the year.
• Tax on rental income: in Vietnam, rental income above a yearly revenue threshold is taxed. The threshold and rates come from tax law; ask the tax office where the home is.

The bottom of the fraction is also more than the price, because buying cost you extra: the registration fee 1, the notary fee 2 and other charges. The transaction costs calculator gives you that total.

A net yield example

Same apartment, 3 billion VND, renting at 12 million a month. Assume one empty month a year and 12 million a year for management and maintenance:

• Rent received: 11 months × 12 million = 132 million.
• Less costs: 132 million − 12 million = 120 million.
• Cost base: the 3 billion price plus a 15 million registration fee and a 2.2 million notary fee, about 3.017 billion.
• Net yield: 120 million divided by 3.017 billion, about 4.0%, before tax on rental income.

The 4.8% becomes about 4.0%. The example’s figures are assumptions; replace them with the price, rent and costs of the home you are looking at.

With a loan

If you buy with a loan, the interest you pay the bank is another large cost. Compare the monthly rent with the monthly loan payment, especially after the promotional rate ends. The mortgage calculator gives you that figure.