Rental yield turns a property’s rent into a percentage of its value, so you can compare properties and compare property with other investments. Gross yield ignores costs and flatters every property. Net yield subtracts the real costs and tells you what you actually earn. The gap between them is where bad purchases hide.
Gross yield
Gross yield = annual rent / property value x 100. Example: a property worth $300,000 rented at $1,500 a month gives annual rent of $18,000. Gross yield = $18,000 / $300,000 x 100 = 6.0%. That is the headline figure agents quote, because it is always the higher one.
Gross yield is useful for a first screen: it lets you compare asking prices quickly. It is not useful for a final decision, because two properties with the same gross yield can have wildly different costs.
Net yield and the expense checklist
Net yield = (annual rent – annual expenses) / property value x 100. The expenses to include: property taxes, insurance, maintenance and repairs, property management fees, and a vacancy allowance. Example expenses: taxes $3,000, insurance $1,200, maintenance $1,800, vacancy $900 (5% of rent), totalling $6,900. Net rent = $18,000 – $6,900 = $11,100. Net yield = $11,100 / $300,000 x 100 = 3.7%.
The property that looked like 6.0% is really 3.7%. That gap is normal: costs commonly eat a third or more of gross rent. If a listing only quotes gross yield, run the net figure yourself before getting excited.
What counts as an expense
Include everything that recurs: taxes, insurance, management, maintenance, homeowner association dues, and utilities you pay. Include a vacancy allowance even if the property is currently rented, because tenancies end. Include a maintenance reserve for big items like roofs and boilers, spread across years. Exclude mortgage interest from the yield calculation itself: yield measures the property, while financing is a separate decision. (Mortgage payments belong in the cash flow calculation instead.)
Also exclude one-off purchase costs, like stamp duty and legal fees, from the annual yield, but do include them when you judge total return on your cash invested. Mixing the two denominators is a common source of inflated claims.
Reading the result
There is no universal good yield: it depends on interest rates, growth expectations, and risk. A 3.7% net yield beats a savings account but may lag a higher-risk investment. Compare net yields within the same city and property type, since tax and cost structures differ by area. And re-check the yield yearly: rents rise, costs rise, and values move, so last year’s yield is not this year’s.
Yield versus capital growth
High-yield properties and high-growth properties are rarely the same asset. Cheaper areas with high rents relative to prices give high yields but slow appreciation. Expensive areas with strong demand give low yields but faster growth. Total return is yield plus growth, and the balance depends on your goals.
An investor needing income now should weight yield heavily. An investor with a long horizon and other income can accept a 3% net yield in a growth area, betting that appreciation beats the yield gap over a decade. Neither choice is wrong, but choosing a property for yield and then being disappointed by slow growth, or vice versa, is a planning failure, not bad luck.
Try it faster with the tool
You can follow every step above by hand, but the free Net Rental Yield Calculator — Gross vs Net Yield After Tax, Insurance, Maintenance and Vacancy does the arithmetic for you. Enter your numbers and it gives the answer right away, so you can check your hand calculation or skip straight to the result.
Quick tips
- Gross = annual rent / value x 100.
- Net = (rent – all annual expenses) / value x 100.
- Always include vacancy and maintenance, not just taxes.