Introduction: Why Calculate the Real Rental Yield?
Rental yield is a key indicator for any real estate investor wishing to assess the profitability of their investment. However, the gross yield often highlighted does not reflect the economic reality of the project. For a relevant analysis, it is essential to calculate the real rental yield, incorporating all charges, taxes, and fiscal aspects. This article offers you a step-by-step method, illustrated with numerical data from official sources, to enable you to make informed decisions.
1. Calculation of Gross Rental Yield
Gross rental yield is the first step in the calculation. It is expressed by the following formula:
The annual rent corresponds to the total amount of rent received over one year, without deduction of charges or taxes. The purchase price includes the property purchase price, excluding notary fees and agency fees.
Numerical example:
Purchase price: €200,000
Monthly rent: €800
Annual rent = €800 × 12 = €9,600
Gross yield = (9,600 / 200,000) × 100 = 4.8%
This figure gives a first idea of profitability but does not take into account the actual costs.
2. Calculation of Net Rental Yield After Charges
Net yield takes into account charges directly related to the operation of the property, such as:
The net yield is therefore significantly lower than the gross yield, highlighting the importance of considering these expenses.
3. Calculation of Net-Net Rental Yield (After Taxes)
To refine the calculation further, tax on rental income must be included. In France, rents are taxed under the real regime or micro-foncier regime:
Micro-foncier regime: flat 30% allowance on rents, applicable if rental income < €15,000
Real regime: deduction of actual charges and depreciation, more complex but often more advantageous
In this article, to simplify and remain accessible, we only include income tax and social contributions at a combined rate of 30% (17.2% social contributions + average income tax of 12.8% in the marginal tax bracket), which corresponds to the flat tax (PFU) applicable to rental income.
The formula is therefore:
Net-net yield (%) = Net yield × (1 - Tax rate)
Using our example:
Net-net yield = 3.49% × (1 - 0.30) = 2.44%
This net-net yield is what the investor can realistically expect to receive after all fees and taxes are deducted.
4. Impact of Acquisition and Financing Costs on the Real Yield
The rental yield calculated so far does not take into account acquisition costs or financing. Yet, these elements strongly affect the effective profitability.
Acquisition costs: Notary fees, agency fees, and registration duties represent about 7 to 8% of the purchase price for an older property (INSEE, 2023).
Financing: The cost of credit (interest) must be included if the purchase is financed by a loan.
If acquisition costs are added to the purchase price, the yield decreases:
Total price = €200,000 + €15,000 (7.5% fees) = €215,000
Regarding financing, if the loan carries 1.5% annual interest over 20 years, the first year's interest payment is about €3,000 (Banque de France, 2024 rate table). This cost further reduces the net yield:
Net income after interest = €6,978 - €3,000 = €3,978
Net yield after interest = (3,978 / 215,000) × 100 = 1.85%
Net-net yield after taxes = 1.85% × 0.7 = 1.30%
5. Comparative Summary of Yields by Calculation Level
6. Limitations and Advice to Refine the Calculation
It is important to note that this calculation does not take into account:
Possible vacancy periods (times without tenants)
Maintenance work and unforeseen repairs
Tax depreciation that can reduce the taxable base
The impact of potential capital gains upon resale
For a complete analysis, it is recommended to use a tax simulator or consult a chartered accountant specialized in real estate.
Conclusion: What Verdict for the French Investor?
The gross rental yield, often highlighted in real estate listings, gives an overly optimistic picture of profitability. By including charges, taxes, acquisition costs, and loan costs, the real net-net yield can be divided by three or even four.
In our concrete example, an initial gross yield of 4.8% drops to about 1.3% net-net after all deductions. This underscores the necessity for the investor to master these calculations before committing.
For French investors, the recommendation is clear: always calculate the real rental yield by including all charges and taxes, and compare this yield with other investments (savings, life insurance, REITs) to verify the relevance of the real estate investment.
Sources:
INSEE, real estate price indices, 2023
Banque de France, mortgage rate tables, 2024
AMF, real estate tax guide, 2023
Bloomberg, average mortgage interest rates France, 2024
