Real Estate ROI Calculator (Rental)

Return on Investment (ROI) is the most important metric in real estate investing. As of 2025, the average rental yield in the Korean real estate market is around 2-4%, but there are significant variations depending on location and property. Higher yield does not necessarily mean better investment, as you must comprehensively consider vacancy risks, building age, and regional development plans.

Real estate ROI is broadly divided into gross yield and net yield. Gross yield is simply annual rent divided by purchase price, while net yield divides net income (after deducting all costs such as maintenance fees, property taxes, and loan interest) by equity. For actual investment decisions, net yield should be used to accurately assess investment value.

Leverage effect is also an important concept. Rather than purchasing a 300 million won property entirely with cash, borrowing 200 million won and investing only 100 million won in equity triples the return on equity for the same rental income. However, if loan interest exceeds rental yield, losses will occur, so careful calculation is necessary.

As of 2025, mortgage interest rates are around 4-5% annually. If you borrow for a property with rental yield below 4%, monthly losses will occur. Therefore, leveraged investments should target properties with rental yields of at least loan rate + 2% to be safe.

As of 2025, Seoul apartment average rental yield is relatively low at around 2.5%. Gangnam area is in the low 2% range, Gangbuk area is 2.5-3%, and Gyeonggi province is 3-4%. Provincial metropolitan cities show 4-5%, but actual yields may be lower due to high vacancy risks.

For officetels and studios, yields are relatively higher. Studios near major Seoul universities show 5-7%, and officetels near subway stations show 4-6% yields. However, maintenance costs are high and frequent vacancies and moves incur repair costs, so actual yields are lower.

Commercial property yields vary extremely by location. Properties near subway stations show 3-4%, while alley commercial areas show 6-8%, but there is significant risk of commercial decline and massive losses during long-term vacancies. Especially after COVID-19, offline commercial areas have contracted, making commercial investments more cautious.

Mixed-use income-generating properties combining land and buildings are also gaining attention. Downtown buildings show 2-3%, provincial mixed-use buildings show 5-7% yields, but initial investment is large and management is complex. As of 2025, the income property market is showing recovery due to interest rate cut expectations.

For accurate yield calculation, all costs must be considered without omission. First, acquisition costs. Acquisition tax is 1-3% for housing, 4.6% for officetels, 4.6% for commercial properties. Acquisition tax for a 300 million won apartment is about 9 million won. Brokerage fees are 0.4-0.9% of sale price, 1.2-2.7 million won for 300 million won. Including lawyer fees of 1 million won, acquisition costs exceed 10 million won.

Second, maintenance costs. Property tax is 0.1-0.4% of assessed value, annually 500,000-2 million won. While maintenance fees are generally paid by tenants, there are owner-paid items such as building repair reserves and elevator maintenance. Fire insurance premiums, comprehensive real estate tax (for high-value properties), and vacancy period maintenance fees should also be considered.

Third, loan interest. Borrowing 200 million won at 4.5% annually means paying 9 million won in interest annually. Even with 1.5 million won monthly rent (18 million won annually), half goes to interest. If interest rates rise 1%, an additional 2 million won annual burden occurs, so interest rate fluctuation risks must be considered.

Fourth, repair and vacancy costs. When changing tenants, wallpaper, flooring, boiler repairs average 1-3 million won. Vacancy periods average 1-2 months, requiring about 10% of annual rent. Considering all these costs, a 5% gross yield often drops to 2-3% net yield.

Leverage is a strategy to increase return on equity by using loans. Purchasing a 300 million won apartment entirely with cash and receiving 1 million won monthly rent (12 million won annually) gives a 4% return. However, borrowing 200 million won and investing only 100 million won in equity means that even after deducting 9 million won loan interest (4.5% annually) from 12 million won, 3 million won remains for a 3% return on equity.

However, leverage is a double-edged sword. If loan rates rise to 5.5%, interest increases to 11 million won, causing profits to plummet to 1 million won. If rates exceed 6%, losses occur. Therefore, leveraged investments must fully consider interest rate rise risks.

LTV (Loan-to-Value) and DSR (Debt Service Ratio) regulations must also be considered. As of 2025, housing LTV limit is 70%, officetels 60%. DSR regulations make it difficult to borrow more than 40% of annual income. Therefore, without sufficient income, leveraged investment itself may be impossible.

The optimal leverage ratio depends on the difference between rental yield and loan rate. If rental yield is 5% and loan rate 3.5%, maximizing leverage is advantageous. Conversely, if the difference between yield and rate is less than 1%, leverage effect is minimal, so increasing cash proportion is safer.

First, location analysis is most important. Check proximity to subway stations, school districts, workplace density, and commercial development. Subway stations, large supermarkets, and schools within 10-minute walk reduce vacancy risk. Also research future development plans. If GTX or new city development is scheduled, long-term value appreciation is expected.

Second, thoroughly inspect building condition. Check construction year, remodeling history, water leakage, elevator condition. Buildings over 20 years old may soon require major repairs. Especially plumbing, electrical, waterproofing facilities should be inspected with professionals.

Third, examine tenant composition and contract terms. Many long-term contract tenants provide stability. Deposit-to-rent ratio, contract expiration timing, tenant age and occupation are important. University area studios have vacancies every 2 years, but office worker dense areas enable 5+ year long-term rentals.

Fourth, confirm legal risks. Check mortgages, seizures, tenant move-in registrations in real estate register. Redevelopment/reconstruction zones may restrict investment or add taxes. Also verify zoning (residential, commercial, industrial) to ensure rental use is legal.

Comprehensive income tax applies to real estate rental income. As of 2025, annual rental income under 20 million won can choose separate taxation (14%) or comprehensive taxation, over 20 million won requires comprehensive taxation (6-45% progressive rates). With much other income, comprehensive taxation can take up to 45% in taxes.

Comprehensive real estate tax must also be considered. If assessed value total exceeds 600 million won (1.2 billion won for one-house owners), comprehensive real estate tax applies. Rates are 0.5-3%, with high-value multi-home owners paying millions of won in additional annual taxes. Even with good rental income, actual yield can drop significantly due to comprehensive real estate tax.

Capital gains tax is also important. Income properties mostly cannot receive one-house exemption, so 6-45% of capital gains goes to taxes when selling. Multi-home owners face heavy taxation (up to 75%), potentially paying most profits as taxes. To receive long-term holding special deduction, must hold at least 3 years.

Tax reduction strategies exist. Gifting to spouse or children to distribute ownership can reduce comprehensive income tax and comprehensive real estate tax. Establishing a corporation applies corporate tax (10-25%), which may be more favorable than individual comprehensive income tax. However, must consider gift tax and corporation establishment/maintenance costs and consult tax professionals before deciding.

Vacancy is the biggest enemy of income properties. 2 months annual vacancy reduces yield by 17%. To minimize vacancy, appropriate rental pricing is crucial. Setting 5-10% below market rates can greatly reduce vacancy periods. Lowering by 100,000 won monthly to reduce vacancy from 2 months to 2 weeks saves 1.6 million won annually.

Tenant management is also important. Good tenants sign long-term contracts, keep properties clean, and have few complaints. When selecting tenants, check occupation, income, residence history. Contact tenants 3 months before contract expiration to discuss renewal and prevent vacancy. Promptly responding to repair requests, even small amounts, increases long-term rental probability.

Seasonal strategies are necessary. University areas have demand peaks in February and August, so prepare vacancies for these periods. Office worker dense areas peak in January and July. Off-season vacancies are hard to fill, so adjusting contract timing to match peak seasons is advantageous.

Relationships with real estate agents are important. Building regular agent relationships gets priority introductions to good tenants. Offering landlord-paid brokerage fees as condition can shorten vacancy periods. Listing with multiple agents and maintaining regular contact is essential to minimize vacancy.

Seoul Gangnam area (Gangnam, Seocho, Songpa) has low yields but high stability. Average yield 2-2.5% is low, but vacancy risk is nearly zero and asset value appreciation is expected. With heavy borrowing, cash flow may be negative due to interest burden, but long-term holding can expect price appreciation.

Seoul Gangbuk area (Nowon, Dobong, Gangbuk) has good balance between yield and stability. Average yield 2.5-3.5% is higher than Gangnam, and transportation improvements (GTX etc.) create value appreciation expectations. Many small apartments in 100-200 million won range lower entry barriers, and high long-term tenant ratio lowers vacancy risk.

Gyeonggi Province (Bundang, Ilsan, Pyeongchon) shows similar yields to Seoul (2.5-3.5%) but lower property prices make entry easier. New cities have good infrastructure for stability, but old downtowns may be unfavorable long-term due to population decline. Must select areas with good news such as subway extensions and new developments.

Provincial metropolitan cities (Busan, Daegu, Gwangju) have high yields but also high risks. Average yield 4-6% is attractive, but population decline and industrial stagnation risk long-term vacancy and asset value decline. Must invest only in areas with certain demand such as university areas, hospital vicinity, industrial complexes. Provincial areas are hard to sell, so long-term holding commitment is necessary.

Loan type selection greatly affects yield. Mortgage loans have low rates (4-5% annually) but LTV limited to 70%. Credit loans have no LTV limit but high rates (6-10% annually). Usually maximize mortgage loans and supplement shortfall with credit loans.

Fixed vs variable rates is also an important choice. As of 2025, fixed rates are 4.5-5.5%, variable rates 4-5%. If rate cuts are expected, variable rates are advantageous; if rate rises expected, fixed rates. For medium to long-term investment, choosing fixed rates to reduce rate fluctuation risk is safer.

Interest-only vs amortization must also be considered. Interest-only payments provide good initial cash flow but require lump sum principal repayment at maturity. Amortization has higher monthly burden but reducing principal is advantageous long-term. If yield is high and asset sale is planned, interest-only; if long-term holding intended, amortization is better.

Loan refinancing is also strategic. If rates drop 1% or more, refinancing is advantageous even paying prepayment penalties. For 200 million won loan, 1% rate difference is 2 million won annually. Even with 1% prepayment penalty (2 million won), holding over 1 year is profitable. Must regularly compare rates to maintain optimal loan products.

First, never rush. Good properties appear when you wait. Hasty decisions lead to buying overvalued properties. Observe the market for at least 3 months and compare 10+ properties before deciding.

Second, prioritize cash flow. Stable monthly income is more important than price appreciation. Must create structure where cash comes in monthly to enable long-term holding. Select only properties where rent exceeds loan interest.

Third, diversify investments. Do not put all eggs in one basket; divide investments across regions and types. Can distribute regional risk and vacancy risk. 3 properties at 100 million won each are safer than 1 at 300 million won.

Fourth, utilize professionals. Help from tax accountants, lawyers, and real estate consultants can reduce mistakes. Even if fees seem wasteful, can prevent major losses.

Fifth, plan taxes first. Simulate comprehensive income tax, comprehensive real estate tax, capital gains tax before investing. Taxes can consume all profits.

Sixth, maintain good relationships with tenants. Good tenants are gold. Promptly resolve even small repairs and restrain excessive increases at contract renewal.

Seventh, understand market cycles. Real estate rises and falls in 5-10 year cycles. Do not buy at peaks, buy at bottoms.

Eighth, prepare emergency funds. Hold 20% of investment as cash to prepare for vacancy, repairs, rate rises.

Ninth, study continuously. Laws and regulations constantly change. Steadily monitor policy changes and market trends.

Tenth, have long-term investment mindset. Rather than short-term price speculation, aim for stable rental income and value appreciation through 10+ year long-term holding.