- Gross yield is annual rent divided by price, while net yield deducts running costs.
- Always include vacancy, repairs and fees in your estimate.
- Compare the result with other places you could put the same money.
The Short Answer
Before you buy a rental, turn the dream into numbers. Calculate the yield, subtract realistic costs and test what happens when the home sits empty for a few months. A property that only works when everything goes perfectly is a risky investment. This guide is general information, not financial advice.
The Key Formulas
| Measure | Formula |
|---|---|
| Gross yield | Annual rent ÷ purchase price × 100 |
| Net income | Annual rent − running costs − vacancy loss |
| Net yield | Net income ÷ total cost of buying × 100 |
| Payback time | Total cost ÷ net income per year |
A Worked Example (Illustration Only)
Suppose a property costs NGN 40,000,000 including fees and earns NGN 3,200,000 in rent per year. The gross yield is 8%. Now deduct NGN 600,000 for repairs, service charge and management, and NGN 200,000 for an empty month. Net income is NGN 2,400,000, so the net yield is 6% and payback is about 16.7 years.
These numbers are invented to show the method. Use real rents from similar properties in the same area, and real quotes for your costs.
Do Not Forget These Costs
Include legal and registration fees, agent fees, repairs, service charges, insurance, management fees, taxes where they apply and the cost of any loan. Add a vacancy allowance, because every rental has gaps between tenants.
Stress-Test the Deal
Re-run your numbers with lower rent, higher repairs and two empty months. If you still earn a fair return and can cover the costs, the deal is stronger. Compare the result with other places you could put the same money, and remember that property is harder to sell quickly than savings or shares.
Check the Location and the Paperwork
Look at demand, transport, security, power and water. Verify the title before paying, as described in our land document guide, and plan how the property will be managed using our property management basics.
Action Checklist
- Collect real rents for similar properties nearby
- Calculate gross yield and net yield
- List every running cost and a vacancy allowance
- Estimate payback time
- Re-run the numbers with worse assumptions
- Verify the title and paperwork before paying
- Compare the return with your other options
