Start with the gross yield
Gross rental yield is the annual rent divided by the purchase price. It gives you a starting point for comparing properties. It does not account for the costs of owning the home or tell you how its sale price will change.
Work out what you keep from the rent
Allow for maintenance, repairs and periods when the home is empty. Include the cost of finding tenants, financing and property tax. Rental income can also be taxable; the deductions you can claim depend on the rules and your expenses. Gross rent is different from the amount you keep.
Compare purchase and sale prices separately
I would look at relevant past transactions, the price you are paying now and the alternatives a future buyer could have. A strong rental figure does not establish what someone will pay for the property later. Past price growth also does not tell you what your own result will be.
Check the assumptions in a return estimate
Record the rent, vacancy periods and ownership costs used in the estimate. Include buying and selling costs. Then check how the result changes if rent is lower or you need to hold the property longer. Keep an estimated sale price clearly marked as an assumption.
Decide what you need the property to do
If you want rental income, check whether the cash left after costs meets that need. If your main aim is to sell later at a higher price, look closely at the entry price and what could support future demand. In either case, I would want to know that you can afford to hold the home if the outcome takes longer than expected.
If you’re working through this for your own move, let’s chat about the details.