Yield Valuation Calculator

Income-producing property is valued by capitalising its net income at a yield: value equals income divided by yield. It is the same arithmetic everywhere, and the whole argument in any valuation is about which yield is appropriate.

Small yield movements produce large value movements, which is why the sensitivity matters as much as the headline figure. A half-point shift on a modest yield can move value by seven or eight percent.

The formula

Capital value = annual net income ÷ yield. To find the price to pay rather than the value, divide by one plus the purchase costs percentage, since the buyer total outlay including costs is what has to produce the target yield.

Worked example

Net income of 45,000 capitalised at 6.5% gives a value of 692,308. At 7% it is 642,857 — a half-point shift moves value by 49,451, or 7.1%. With 6.5% purchase costs, the price to pay to achieve a 6.5% yield on total outlay is about 650,054.

Get the income right first

The yield is contested, but the income is where errors do the most damage. Use net income after running costs and a realistic vacancy allowance, not gross rent, and check whether any of it is temporary — a rent-free period ending or a short lease expiring changes the sustainable figure entirely.

Frequently asked questions