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If you’re new to property investing, you’ve probably come across the terms Rental Yield and ROI (Return on Investment).
They sound similar, right? So, do you really need to know the difference?
The short answer: Yes—but don’t worry, it’s simpler than you think.
Understanding these two numbers isn’t about memorizing formulas. It’s about helping you make smarter, more confident investment decisions.
Let’s break it down in a way that makes sense…
What Rental Yield Tells You (And Why It’s Useful)
First, let’s talk about rental yield—a quick way to measure how much rental income a property generates compared to its price.
Think of it like this…
If you’re earning rent from a property, how much money is that bringing in each year?
For example:
- You buy a villa in Bali for $200,000
- It earns $20,000 per year in rent
- That means your rental yield is 10%
Here’s the simple formula:
Rental Yield = (Annual Rental Income ÷ Property Price) × 100
A higher yield means your property is generating strong short-term cash flow—which is great!
But does that mean it’s the best investment?
Not necessarily. That’s where ROI comes in.
What ROI Tells You (That Rental Yield Doesn’t)
While rental yield looks at your yearly income, ROI (Return on Investment) looks at the bigger picture.
ROI considers not just rent but also:
- Property appreciation (if its value increases)
- Upfront costs like taxes, fees, and maintenance
- The total return you’re getting over time
Let’s say your $200,000 villa increases in value by $20,000 after a year (which depends on market trends, demand and location growth, rental demand, area improvements, etc.).
If you add that to your $20,000 rental income, your total profit is $40,000.
Now, let’s say your total investment (including taxes, fees, etc.) was $210,000.
Here’s your ROI:
ROI = (Total Profit ÷ Total Investment Cost) × 100
ROI = ($40,000 ÷ $210,000) × 100 = 19%
So while rental yield focuses on short-term cash flow, ROI helps you understand whether your investment is growing over time.
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Now, you might be wondering: Which one should you focus on?
How Rental Yield and ROI Work Together
The truth is, both numbers are important—just in different ways.
- Rental yield is great for estimating cash flow and seeing if a property can pay for itself through rent.
- ROI gives you the full picture, factoring in long-term property appreciation and total investment costs.
Think of it this way…
If your goal is a steady monthly income, rental yield is your go-to metric.
If you’re thinking about long-term profit and wealth-building, ROI tells you the full story.
But to get the most accurate picture, there are a few common mistakes investors should watch out for…
3 Common Mistakes (And How to Avoid Them)
- Only Looking at Rental Yield
A high rental yield looks great, but it doesn’t always mean a property is the best long-term investment. If property values in the area aren’t increasing, your overall returns might not be as strong.
- Forgetting About Expenses
Rental yield doesn’t factor in maintenance, property taxes, or management fees. That’s why it’s important to look at net rental yield—which is what’s left after expenses.
- Ignoring Time
ROI depends on how long you hold the property. If you sell too soon, you might miss out on appreciation, affecting your total returns.
So, how can you use all this information to make better decisions?
How to Use Rental Yield & ROI When Choosing a Property
When evaluating a property, these two numbers help you in different ways:
- Rental Yield → Measures how much rent you earn compared to the property price.
A higher yield means you’re getting more rental income for what you paid, which is great for steady cash flow in the short term.
- ROI → Looks at your total profit, including rental income, property appreciation, and costs.
A higher ROI means your investment is growing in value over time, making it a better long-term choice.
By balancing both, you’ll find a property that makes money now and continues to grow in value.
And remember, you don’t have to figure this out alone.
If you’re unsure about a property’s numbers, our team can help you run the calculations, compare options, and find the best investment for your goals.
If that’s something you want, click below to book a FREE 10-minute strategy session with our senior advisors.
