How to Calculate Rental Yield and Payback Period

The most commonly used metrics when buying a home to rent out are rental yield and the payback period. Both express the same relationship in different ways: the ratio between the home's price and the rent it will generate.

Gross rental yield

This is the ratio of annual rental income to the home's price. If a home worth 6,000,000 TL rents for 30,000 TL a month, the annual rent is 360,000 TL and the gross yield is 6%.

Payback period

This is found by dividing the home's price by the annual rent; it shows how many years it takes for the home to 'pay for itself.' In the same example, 6,000,000 / 360,000 ≈ 16.7 years. The higher the gross yield, the shorter the payback period.

Net yield

To see the true yield, the following items need to be subtracted from the rent:

• Vacancy periods (between tenants)
• Maintenance and repairs that are the landlord's responsibility
• Property tax, DASK, and home insurance
• Tax on rental income
• Agent's fee paid to find a tenant

Limits of these metrics

• Rental yield doesn't account for capital appreciation; in areas where appreciation is expected, the yield may look low even though total returns can be high.
• Listed rents can run higher than actual achieved rents; base your calculation on a realistic rent.
• In periods of high inflation, rent increase caps and rent determination proceedings affect the yield over the years.