Buying a Condo for Rent: How to Calculate Rental Yield After Deducting Costs

By PAH – Property Auction House

A 3 million baht condo that rents for 15,000 baht per month may look like an asset providing a 6% annual return. However, this figure is based on the assumption of full occupancy throughout the year and does not account for holding costs. Investing in a condo for rent requires separating the sticker price from the actual remaining income.

Rental Yield is a useful preliminary comparison tool, provided the same calculation base is used. When different listings account for costs differently, a higher yield does not necessarily mean higher net earnings.

What does gross yield tell you?

The commonly used formula is: Total annual rent divided by the purchase price, multiplied by 100.

Using the hypothetical example: Purchasing a condo for 3,000,000 baht and receiving 15,000 baht in rent for all 12 months results in a total annual rent of 180,000 baht, representing a 6% annual gross yield.

However, if you have to pay for decoration and additional acquisition costs, the actual investment will be higher than the room price. Therefore, comparing investment properties should involve creating another table that includes these costs.

How does the return change with vacancies and expenses?

Assume the same room has a tenant for 11 months; the actual rental income would be 165,000 baht. With an additional initial cost of 150,000 baht, the total investment becomes 3,150,000 baht.

122,000 divided by 3,150,000 multiplied by 100 equals approximately 3.87% per year. This figure is not yet the net return after all types of expenses, as it excludes taxes, insurance, other property-specific costs, and financing costs. These are all hypothetical examples, not market prices or guaranteed returns.

Commissions and repairs do not occur every year, so it is better to create a multi-year estimate along with a reserve fund rather than just looking at the year with the best income.

If paying a bank mortgage, look at monthly cash flow separately

Return on property and cash flow after mortgage payments are different perspectives. If you receive 15,000 baht in rent but have a 17,000 baht installment, the owner must contribute at least 2,000 baht that month, before accounting for common fees and other expenses.

Installments consist of principal and interest. The principal payment reduces debt but is still cash leaving your account. To assess whether you can "afford the asset," you must use the actual payment amount, including months with no rental income.

You should simulate scenarios with lower-than-expected rent, longer vacancy periods, and a lump sum repair cost occurring simultaneously. If you have to use all your reserves to get through this situation, you might need to reconsider the purchase price or the size of the loan burden.

PAH Perspective: Set purchase price based on verifiable income

Before buying a condo for rent, look at competitor rooms in the project and the same area, comparing size, condition, furniture, and contract terms. The listed rental price is initial information but does not confirm that a tenant is actually willing to pay that price or how long it takes to find one.

If buying a property through an auction, this principle still applies, but you must add specific costs and conditions for each property before setting a ceiling for your bid. Check documents, property condition, and delivery status as accessible, without assuming every property is ready for rent immediately.

PAH emphasizes comparing total costs with justified income. When seeing both vacancy periods and monthly burdens, investors can set a purchase budget that is more consistent with their own holding capacity.

Data Source

Formulas and tables are financial calculation examples prepared for this article. Arithmetic has been checked; this does not use average return statistics or reference actual room prices. Tax rates and expenses on the transfer date must be verified according to facts on the transaction date.