Buying a condominium room and renting it out has gain popularity because, apart from having a property, the owner will earn from renting it out or selling it out.

Before deciding on buying a condominium room, there are important factors to consider such as the good location next to the train station or the reputation of the property company. However, if the goal is to buy a condominium to rent out, people might forget about the “monthly return on investment” that they desire because they do not know how to calculate it.

Rental Yield is the tool to calculate Income Producing Property that is globally accepted. Apart from the rental yield on rental detached house and condominium, it can also apply to apartment, dormitory, hotel, commercial building and stall. The formula is as follow:

1.Gross Rental Yield

This calculation is simple because the calculation does not require cost and any expenses. It only needs the estimated rental fee of the whole year and the price of the condominium room.

The yearly estimated rental fee received x 10

Price of condominium

For example, the price of a condominium is 3 000 000 baht. It was rented out at 20 000 baht per month. The tenant makes a one year contract (240 000 baht received as a rental fee per year), the rental fee received will be:

240,000 x 100

3,000,000

= 8% per year

This formula might be erred. In case that the tenant cannot pay the rent according to the contract or the tenant rented less than a year, for example, 8 months (160 000 baht received as rental fee). Therefore, when the income-producing property decreases, the gross rental yield also decreases.

160,000 x 100

3,000,000

= 5.33% per year

2. Net Rental Yield

This formula is similar to the first one, but it deducted the condominium maintenance fee.

Rental received according to the contract – management fee) x 100

Price of condominium

For example, the price of condominium is 3 000 000 baht. It was rented out at 20 000 baht per month. The tenant makes a one year contract (240 000 baht received as rental fee per year). The maintenance fee is 24 000 baht per year and the net rental yield will be:

(240,000 – 24,000) x 100

3,000,000

= 7.20% per year

3. Equity Dividend Rate

This is the formula that gives the result the closest to the investment because before receiving the rental fee, apart from the deduction of maintenance fee, the mortgage that will be paid to the bank for the whole year is also deducted. At the same time, the price of a condominium is not paid as a lump sum (3 000 000 baht), but it is paid partly as actual costs such as deposit and down payment. Moreover, other expenses are included such as room decoration fees, furniture fees, broadband internet installation fees, etc.

Rental received from the contract – management fee – Yearly mortgage x 100

Deposit + Down + Decoration + Furniture + wifi

For example, the price of the condominium is 3 000 000 baht. The deposit is 100 000 baht with 500 000 baht down payment and 15 000 baht mortgage (180 000 baht per year). The yearly maintenance fee is 24 000 baht. The room decoration fee is 50 000 baht. The furniture fee is 20 000 baht and the broadband internet installation fee is 2 000 baht. It was rented out at 20 000 baht per month. The tenant makes a one year contract (240 000 baht received as the rental fee per year). The equity dividend rate will be:

(240,000 – 24,000 – 180,000) x 100

(100,000 + 500,000 + 50,000 + 20,000 + 2,000)

= 5.36% Per year

Return on Investment (ROI) of each year might be different, but at least, it should be higher than inflation and interest rate. For example, 2% inflation and 1% interest rate will be equal to 3% Therefore, the ROI on rental condominium should be higher than 3%

Buying a condominium and renting it out is another appealing choice. If one studies the information in detail, there is a chance that this will make money continuously and can create long-term financial stability.