Gross and net yield, vacancy, expenses and payback with rent increases, step by step.
The most common mistake when buying a home for investment is to look only at the gross rental yield. The real yield emerges after deducting vacancy periods, dues, maintenance, tax and financing costs. Follow the steps below for an accurate calculation.
1. Gross rental yield
Annual rental income is divided by the purchase price. For example, if a 6 million TRY apartment rents for 32,000 TRY a month, annual gross rent is 384,000 TRY and gross yield 6.4%. This figure does not reflect reality because it excludes vacancy periods and expenses.
2. Deducting vacancy and expenses
Assuming one month vacant a year, annual rent falls to 352,000 TRY. After deducting 1,500 TRY a month for dues and maintenance, net income becomes 334,000 TRY and net yield falls to 5.6%.
3. Payback period
Simple payback is the purchase price divided by net annual income: 6,000,000 / 334,000 ≈ 18 years. But rent increases every year. With an assumed 25% annual rent increase, cumulative net income covers the price in about 7.6 years. This difference shows real estate's protective quality in inflationary environments.
4. Financing cost
If you make the investment with a mortgage, compare the monthly instalment with the rent. If the loan interest is higher than the rental yield, the investment may be negative in cash-flow terms at first and rely on capital growth.
5. Capital growth and exit
Real estate value growth differs by area; factors such as transport investment, urban transformation and population growth are decisive. Also take the title fee and commission paid on sale into account as exit costs.
You can enter your own figures in the 'Rental Yield and Payback Calculator' tool on our site. This article is not investment advice; future rent and value growth cannot be guaranteed.
Which property type yields more?
Small 1+1 and 2+1 apartments usually give a higher rental yield per square metre because the tenant pool is wide and vacancy is short. Larger apartments and villas come with a higher price and lower yield multiple but can be advantageous for capital growth and prestige. In commercial property the rental yield can be high, but vacancy risk and contract term are more decisive.
Do not forget tax
Residential rental income is exempt up to a certain amount; income above it is declared. Check the current exemption amount and tax rates with your accountant.
