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How to Calculate the Real Return on an Apartment After the First Year of Rental

NovAsia · updated July 20, 2026

Prepared by the NovAsia Editorial Team

Before an apartment is purchased, investors are often shown a simple formula.

The unit costs USD 100,000. Expected rent is USD 700 per month. Annual rent is USD 8,400. Gross yield is 8.4%.

After the first year, the bank account may tell a very different story.

The first six weeks were spent furnishing the apartment and finding a tenant. The agent received one month's rent as commission. The tenant negotiated two rent-free weeks. One payment arrived late. The air conditioner required two repairs. The owner paid condominium charges, tax, insurance, and the cost of a new washing machine. The manager calculated its percentage on rent due rather than rent collected. At year-end, the building announced a special assessment.

On paper, the annual rent was USD 8,400. The actual result was much lower.

The first full year should not be used to defend the original sales forecast. It should be used to test the investment thesis. By then, the owner has real information about vacancy, management costs, tenant reliability, building expenses, and the apartment's ability to compete.

A proper review does not end with one percentage. It moves step by step from the contractual rent to the owner's actual cash and separately shows the apartment's operating performance, the effect of debt, and any change in market value.

First define what “the first year” means

The first year may refer to:

If the unit was handed over in March, furnished in May, occupied in July, and reviewed in December, it has not completed a full operating year.

It is useful to show two periods.

Actual period

All real receipts and payments from the start of ownership. This shows how much cash the owner has actually invested and received.

Stabilized period

A twelve-month period during which the unit was genuinely available for rent, including real vacancy and recurring costs. This provides a better view of the apartment's ongoing operation after launch.

Annualization is acceptable only when supported by real rent and cost evidence. Six empty months should not be replaced with an assumption of full occupancy.

The purchase price is not the total invested capital

Gross yield is often calculated against the price in the sale and purchase agreement. The owner's actual capital commitment can be materially higher.

Total invested capital may include:

Actual capital invested can easily be 8–20% above the advertised unit price.

Two bases are useful.

Yield on purchase price

This can support broad market comparison if every property is calculated in the same way.

Yield on total invested capital

This shows the return on the owner's real money.

If the apartment cost USD 90,000 but the total after closing and furnishing was USD 105,000, both figures may be reported—but they answer different questions.

Contract rent is not the same as earned income

The lease may state USD 700 per month, but the year can include:

Four figures should be separated.

Scheduled rent

The rent that would have been payable under the original calendar before concessions and later changes.

Rent charged

The amount actually invoiced after rent-free periods, partial months, and agreed discounts.

Rent collected

Money that reached a verifiable account.

Amount transferred to the owner

The amount remitted after manager deductions.

For cash-return analysis, rent collected and cash transferred matter more than the nominal lease rate.

Vacancy should be measured against available days

A basic occupancy formula is:

Occupied days / days the apartment was available for rent

If the unit is taken off the market for an owner-directed renovation, that is still economic vacancy.

Lost-income periods may include:

The final category is especially important: a physically occupied apartment may generate no income.

It is useful to calculate separately:

A rent-free period is a hidden discount

A tenant signs a twelve-month lease at USD 700 per month and receives the first month free.

Nominal annual rent:

700 × 12 = USD 8,400

Actual rent under the concession:

700 × 11 = USD 7,700

Average monthly rate over the full term:

7,700 / 12 = USD 641.67

If the owner also pays a USD 700 leasing commission, the first-year amount before other expenses is USD 7,000, equal to approximately USD 583 per month.

Every concession should be translated into an effective annual rental rate.

Arrears are not income until collected

A management report may show USD 1,400 as outstanding rent. That is a receivable. It is not cash income.

The review should show separately:

Doubtful debt should not be included in realized cash yield. A probability-weighted scenario may be prepared, but it must be labeled clearly as an estimate rather than a receipt.

Income should be supported by bank evidence

Reliable evidence may include:

The manager's spreadsheet should be reconciled to the bank. Check whether:

A common mistake is treating the manager's internal report as final evidence without independent reconciliation.

Expenses should be classified by type

Fixed expenses

These continue even while the apartment is empty:

Variable expenses

These depend on occupancy or tenant turnover:

Irregular expenses

They do not occur every year, but they are part of ownership economics:

This classification helps distinguish recurring operating costs from periodic capital demands.

Free service charges do not mean zero long-term cost

A developer may include the first year's service charge in the purchase price. The owner's statement shows no payment, but the cost has not disappeared.

For a sustainable yield, the regular service charge after the promotion ends should be included.

The same applies to:

A subsidized first year can make the investment look artificially strong.

Tax should follow current rules, not the manager's net transfer

Prakas No. 169 on tax on income from immovable property rental remains listed by Cambodia's General Department of Taxation as effective.

The owner should distinguish:

The precise treatment depends on the taxpayer's status, the lease, and current guidance.

The investment review should include tax actually paid and a reserve for a known liability. A net transfer from the manager after commission is not automatically after-tax income.

Management fees may have several components

A manager may charge:

The owner should calculate the total annual cost of management.

An advertised 8% fee may be accompanied by one month's rent for leasing, separate inspections, and a 10% markup on repairs. The effective first-year management cost can therefore be much higher.

Repairs should be classified by cause

Ordinary owner expense

Wear, minor plumbing work, air-conditioner servicing, and aging equipment.

Tenant damage

Potentially recoverable from the deposit or through a separate claim if fault is proved.

Developer defect

Potentially recoverable from the developer or contractor if the relevant rights remain valid.

Common-property failure

Potentially the responsibility of the condominium budget or insurer.

Capital improvement

Work that upgrades the apartment and may support future rent or value.

If the owner pays to repair a common riser and records it as an ordinary internal repair, the operating result is distorted. However, the owner should not remove the cash outflow merely because reimbursement may be possible. Record the payment now and any later recovery separately.

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Furniture should be considered across its useful life

An initial furniture package costing USD 8,000 is not necessarily an operating expense of the first year, but it is part of total capital invested.

For sustainable return analysis, the owner should also create an annual replacement reserve. An illustrative schedule might be:

If the annual replacement reserve for the full package is approximately USD 1,300, it is useful to deduct that amount when estimating the apartment's sustainable net return.

This is a management estimate, not tax depreciation.

Without a reserve, the early years look unusually profitable and the eventual replacement year appears unexpectedly disastrous.

Capital expenditure should not be mixed with operating income

Net operating income is commonly expressed as:

Actual rental income − normal operating expenses

Debt payments and major capital expenditure are shown separately.

The owner needs two views.

Net operating income

This shows how efficiently the apartment performs before financing.

Net cash flow

This shows the cash remaining after debt service and major capital spending.

If a USD 12,000 new kitchen is treated as an ordinary repair in one year, operating performance becomes difficult to compare. If it is ignored completely, the owner's cash result is overstated.

Financing changes the return calculation

With debt, at least four measures are useful.

Net property yield

Net operating income / total property cost

Cash-on-cash return

Annual cash flow after debt payments / owner's invested equity

Principal repayment

The part of the payment that reduces the loan balance and increases the owner's equity.

Interest

The economic cost of financing.

Example:

Net property yield: 6%.

Cash-on-cash return: 2.4%.

Part of the USD 6,000 reduced the principal balance. That matters to long-term net worth, but the entire debt payment remains a cash outflow for liquidity analysis.

Special assessments should be shown separately

Suppose the condominium charges the apartment USD 2,000 for elevator replacement. That payment can be viewed as:

For a balanced analysis, show:

The assessment should not simply be deleted as “non-recurring.” Real estate ownership produces irregular expenses on a recurring basis.

Currency can change the owner's result without changing the rent

The apartment may be purchased and rented in US dollars while the owner measures wealth in euros, rubles, or another currency. Exchange-rate movement changes the owner's personal return.

Separate:

A currency gain is not evidence of good property management. A currency loss does not necessarily mean the apartment is underperforming. But the owner's actual converted cash should be shown.

Unrealized appreciation is not rental yield

An agent may say the apartment is now worth USD 110,000 rather than USD 100,000. That is a possible capital gain, not rental income.

On sale, the owner may still incur:

The report should therefore separate:

It is misleading simply to add an estimated 10% appreciation to a 6% rental yield and declare a 16% profit.

Current value changes the forward-looking yield

Historical yield is measured against original investment. The decision to keep the apartment should compare income with current realizable value.

An owner bought cheaply and earns 8% on the old price. Today the apartment could be sold for net proceeds of USD 150,000, while annual net operating income is USD 6,000.

6,000 / 150,000 = 4%

The relevant question is now whether to keep USD 150,000 tied up in the apartment for USD 6,000 a year or use the capital elsewhere.

Example of a full calculation

Capital invested

Total invested capital: USD 113,000.

Income

Cash received: USD 7,750.

Operating expenses

Total expenses: USD 3,950.

Cash result, broadly comparable to net operating income: USD 3,800.

3,800 / 113,000 = 3.36%

If an additional USD 1,000 annual reserve for furniture replacement is included, the sustainable return falls further.

The advertised gross yield on the purchase price was 8.4%. The actual investment performs very differently.

Compare the result with genuinely similar properties

Useful comparisons include:

A furnished apartment in BKK1 should not be compared with an unfurnished studio in an outer district solely by headline yield.

A high yield may reflect greater risk, weak resale liquidity, building problems, short leases, or incomplete tax compliance.

Market context still matters

Knight Frank reported that Phnom Penh condominium supply reached 63,334 units in the second half of 2025, while prices remained under pressure amid subdued demand.

The same report estimated occupancy of internationally managed serviced apartments at approximately 39%.

Those figures should not be applied directly to a privately owned apartment, but they illustrate the competitive environment. Vacancy is not always evidence of an individual owner's mistake. At the same time, a difficult market does not excuse an unrealistic price, poor listing, or slow response to inquiries.

Mark unusual first-year events separately

Examples include:

Prepare:

Do not classify every negative item as “non-recurring.” Different one-off costs arise throughout the ownership period.

Minimum owner report after twelve months

A useful annual review should show:

One percentage without a transaction ledger is not an audit.

Judge both the amount and the quality of the return

A low first-year return may be acceptable where:

A high return may be fragile where:

The quality of the income is as important as the percentage.

What to do after the review

Keep the strategy

Where net income is sustainable and competitive relative to the apartment's current value.

Change the rent

Where the effective rate is below the relevant market or vacancy is too high.

Replace the manager

Where tenant search is slow, reporting is poor, or expenses are opaque.

Upgrade the apartment

Where specific defects reduce rent and the expected improvement is supported by evidence.

Review the loan

Only where cash flow and lender terms permit a change without excessive risk.

Sell

Where future yield is weak, building risk is rising, and the capital can be used more effectively elsewhere.

Conclusion

Gross yield is a convenient marketing ratio. Real first-year return begins with reconciling cash.

The owner should move from scheduled rent to money actually collected, then deduct vacancy, concessions, leasing commission, management, service charges, tax, insurance, repairs, and a sustainable reserve for replacement of furniture and equipment.

Net operating income shows how the apartment itself performs. Cash-on-cash return incorporates financing and the owner's actual equity. Appreciation and principal repayment should be shown separately.

The first year is the point at which the apartment stops being a number in a brochure and becomes a managed operating asset.

This article is for general information only and is not tax, accounting, or investment advice. Tax, depreciation, debt, and currency results should be calculated using the owner's status and actual documents.

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Sources

  1. Knight Frank Cambodia — Cambodia Real Estate Highlights, second half of 2025. Used for condominium supply, market correction, and serviced-apartment occupancy context.
  2. General Department of Taxation of Cambodia — Prakas No. 169 MEF.PrK.GDT on Tax on Income from Immovable Property Rental dated 20 March 2024, listed as effective.
  3. General Department of Taxation of Cambodia — official immovable-property rental tax forms, filing calendar, and related guidance.
  4. RICS — real estate agency and management principles effective from 1 January 2025. Used for approaches to client money, reporting, documentation, and transparency.
  5. RICS — Service Charge Residential Management Code, 4th edition, effective 7 April 2026. Used as comparative guidance on service-charge reporting and reserves; it is not mandatory Cambodian law.

Frequently asked

Which figure matters more, gross yield or net yield?

Gross yield is useful for a quick comparison, but decisions about holding, improving, or selling should rely primarily on net yield and the return on the owner's actual invested equity after paid expenses.

Should appreciation be included?

Yes, but separately from rental performance. An unrealized change in value is not cash flow and should not be used to conceal weak operating income.

Is loan principal repayment an expense?

It is excluded from net operating income because it is a financing movement. However, the full debt payment reduces the owner's available cash and must be included when calculating cash-on-cash return. The principal portion also increases the owner's equity in the property.

How should furniture and major renovation be treated?

Initial furnishing belongs in total invested capital. Major replacements and upgrades should be shown separately as capital expenditure, with an annual reserve included for future replacement.

What if the first year was incomplete?

Separate the launch period from the stabilized rental period, report the actual result, and prepare a reasonable annual scenario without assuming occupancy that never occurred.

Read also

Which Cambodian Real Estate Data Can You Trust?Developer Discounts in Cambodia: Real Value or Marketing?The Risk of Identical Apartments After a Project Is Completed