Calculate Rental Yield & ROI in Istanbul

Istanbul, as one of the world's largest cities, is an attractive destination for real estate investment. However, due to severe currency fluctuations and high inflation in Turkey, relying on superficial reports is not enough. This article provides a step-by-step guide for accurately calculating rental yield and return on investment in the Istanbul real estate market.

Part One: Understanding the Fundamental Concepts

Gross Rental Yield

This is the simplest metric for measuring a property's return. Gross yield shows the ratio of annual rental income to the property's purchase price, before deducting any expenses.

Formula:

Gross Rental Yield=Property Purchase PriceMonthly Rental Income×12​×100

For example, for a property valued at 5,000,000 TL with a monthly rent of 20,000 TL, the gross yield would be 4.8%.

Net Rental Yield

For a more accurate assessment of a property's profitability, all associated ownership costs must be subtracted from the rental income. This metric, known as net yield, provides an investor with a more realistic view of the property's cash flow.

Formula:

Net Rental Yield=Property Purchase PriceGross Annual Rental Income−Annual Expenses​×100

Expenses include rental income tax, aidat (monthly maintenance fees), insurance, and maintenance costs.

Total Return on Investment (ROI)

This is the most comprehensive indicator that shows the profitability of an investment. This metric considers not only the net income from rent but also the increase in the property's value (capital appreciation) during the ownership period. In volatile markets like Turkey, where property value growth is much higher than rental yield, this metric is vital for long-term investments.

Formula:

Total Return on Investment=Total Initial InvestmentNet Rental Profit+Property Value Increase​×100

Part Two: Step-by-Step Guide to Calculating Net Yield in Istanbul

Step 1: Determining Gross Annual Rental Income

Rental prices in Istanbul heavily depend on the area and type of property. The average monthly rent for a furnished apartment in Istanbul is between 12,500 and 45,000 TL, although this amount can be higher in some areas.

List of Average Apartment Rental Prices in Selected Istanbul Districts

• Şişli: A 60 sqm one-bedroom apartment with a monthly rent of 18,000 TL.
• Beylikdüzü: An 80 sqm two-bedroom apartment with a monthly rent of 15,000 TL.
• Taksim: An 80 sqm two-bedroom apartment with a monthly rent of 18,000 TL.
• Maslak: A 70 sqm one-bedroom apartment with a monthly rent of 25,000 TL.
• Beşiktaş: A 65 sqm one-bedroom apartment with a monthly rent of 25,000 TL.
• Kartal: A 55 sqm one-bedroom apartment with a monthly rent of 12,000 TL.
• Kadiköy: A 40 sqm studio apartment with a monthly rent of 15,500 TL.
• Büyükçekmece: A 150 sqm villa with a monthly rent of 15,500 TL.

Step 2: Calculating Annual and Ongoing Property Costs

A savvy investor considers all operational costs to calculate net yield. These costs include:

• Rental Income Tax: In Turkey, the income tax system is progressive, with rates ranging from 15% to 40%. The tax rate is determined based on the annual income from rent. For example, income up to 18,000 TL is subject to 15% tax, while income over 500,000 TL is subject to 40% tax.
• Aidat or Monthly Charge: This fee covers the maintenance of common areas like security and swimming pools. The cost varies from approximately 50 TL for regular apartments to 3,000 TL or more for luxury complexes, depending on the facilities.
• Maintenance and Utility Costs: While utility bills like water, electricity, and gas are usually paid by the tenant, fundamental maintenance and repair costs are the owner's responsibility and should be included in the calculations.

Step 3: Practical Example of Net Yield Calculation

Assume a 100 sqm apartment in Beylikdüzü is purchased for 1,840,000 TL and rented out for 15,000 TL per month.

Practical Example of Annual Net Yield Calculation

This example shows that the actual net yield (7.01%) is significantly lower than the gross yield (9.78%) and provides a more accurate picture of profitability.

Part Three: Calculating ROI and the Role of Property Value Growth

Analyzing the Trend of Property Value Increase

For an investor in the Turkish market, the real profit often comes from the growth in property value, not from rent. This is due to high inflation and Lira fluctuations against foreign currencies. Reports indicate that housing prices in Istanbul increased by up to 93% in one year.

Purchase and Sale Costs

In addition to ongoing costs, one-time purchase and sale costs should also be included in the ROI calculation. These costs include:

• Title Deed Transfer Tax: 4% of the property's value.
• Real Estate Agent Commission: 12% of one year's rent for the tenant.
• Capital Gains Tax: Up to 35% of the profit from the sale if the property is sold in less than 5 years. After 5 years, this tax does not apply.

Comprehensive ROI Scenario

Assume a property is purchased for 5,000,000 TL, and the initial cost including tax is 5,200,000 TL. After two years, the property value increases to 9,500,000 TL. After deducting capital gains tax and other costs, the net profit from the sale is 2,795,000 TL. Including two years of net rental income (258,000 TL), the final ROI will be approximately 58.7%.

Part Four: Risk Analysis and Key Recommendations

• Lira Fluctuations and Inflation: The main challenge is the Lira's fluctuations.2 This risk can be managed by regularly converting profits to a stable currency or using long-term rental contracts.
• Legal and Management Risks: The property buying process is complex and requires legal consultation. Lease agreements must be one-year contracts and officially registered at "noter" offices.
• Market and Liquidity Risks: Real estate investment comes with general market risks like liquidity and unforeseen costs. Accurate market analysis and consulting with local experts can minimize these risks.

Summary: Key Takeaways for Investors

To accurately calculate the return on real estate investment in Istanbul, looking at rental prices alone is not enough. A comprehensive analysis must consider the following:

• Net Rental Yield: This metric is more accurate than gross yield and accounts for all costs, including tax, aidat, and maintenance.
• Property Value Appreciation: In the Turkish market, the main profit often comes from the growth in property value. This capital appreciation can hedge against currency fluctuations.
• Hidden Costs: Include one-time purchase and sale taxes like title deed transfer tax and capital gains tax in your calculations.
• Location and Property Type: Strategic selection of the area and property type (e.g., furnished apartment or new project) directly impacts rental income and value growth potential.
• Expert Consultation: Due to legal complexities and market fluctuations, it is highly recommended to work with a reputable real estate agency and local experts.

Frequently Asked Questions