How to calculate the rental rate of return

There are three algorithms of rental rate of return: rental rate of return analysis method, rental rate of return method and IRR method.

1, rental return analysis method

Formula: (monthly after-tax rent-monthly property management fee) × 12/ total purchase price. The greater the ratio calculated in this way, the more worthwhile the investment. The advantage is that rent, house price and their relative relationship are considered, which is a simple method to choose "excellent real estate".

The disadvantage is that it does not consider all the input-output and the time cost of funds, so it can not be used as a comprehensive basis for investment analysis and can not provide a specific analysis of mortgage payment.

2. Rent yield method

Formula: (after-tax monthly rent-monthly mortgage payment) × 12/ (down payment within the delivery time of forward house+mortgage payment), which has the advantage of considering the rent, price and the main investment in the early stage, and is more suitable than the rental return method, and can estimate the length of the capital recovery period.

The disadvantage is that it does not consider the time effect of other inputs and funds in the early stage, and it cannot solve the cash analysis problem of multiple sets of investments, and because of its inherent one-sidedness, it cannot be used as an ideal investment analysis tool.

3. Internal rate of return method

Formula: IRR= accumulated total income/accumulated total investment = monthly rent × accumulated rent months during the investment period/(mortgage down payment+insurance premium+deed tax+overhaul fund+other investments such as furniture+accumulated mortgage payment+accumulated property management fee).

The advantage is that IRR method considers all factors such as investment, income and cash flow during the investment period, and can also be used in combination with rental rate of return. IRR rate of return can be understood as deposit in banks, but the interest rate of banks in China is calculated according to simple interest, while IRR is calculated according to compound interest.

About the rental rate of return

Rent yield refers to the ratio of monthly rent to house price. The rental rate of return measures the investment income of real estate. For example, in real estate investment, the rental return rate is a very important indicator to measure whether the property is worth investing, because the house price may be wet and frothy, but the rent will not bubble, which is the real demand of the market.

Rental rate of return is a calculation method to calculate the return on investment, which is mainly aimed at the calculation of the return on investment in real estate and can be used to measure the return on investment.

According to the usual logic, income includes rent and property appreciation, but the appreciation of property must be reflected by the operating conditions, so it is mainly the estimation of rent. Generally speaking, 10 years will be used as the period for calculating IRR.

The above contents refer to Baidu Encyclopedia-Rent Return Baidu Encyclopedia -IRR.