How to Calculate Rental Yield (Gross and Net)

What is rental yield?

Rental yield is the annual rental income from a property expressed as a percentage of its value. It gives you a quick way to compare properties of different prices and rental rates on equal terms - the same way you would compare interest rates on savings accounts.

There are two versions: gross yield and net yield. Most property listings advertise gross yield. Most experienced investors make decisions based on net yield. The gap between the two is often larger than buyers expect.

Gross rental yield formula

For example: a property worth 300,000 that rents for 1,800 per month has a gross yield of (1,800 x 12) / 300,000 x 100 = 7.2%. Gross yield ignores all costs beyond the purchase price - no taxes, no insurance, no vacancy, no management fees, no maintenance. It is a starting point, not a decision metric.

Net rental yield formula

Annual expenses typically include: property taxes, landlord insurance, vacancy allowance (typically 5-8% of annual rent), property management fees (8-12% of rent if managed), and maintenance and repairs (commonly estimated at 1% of property value per year). Using the same example: 1,800/month rent, 300,000 property, with 400/month in total operating expenses. Net NOI = (1,800 - 400) x 12 = 16,800. Net yield = 16,800 / 300,000 x 100 = 5.6%. The gap from gross 7.2% to net 5.6% is meaningful.

Worked example: gross vs net yield

Property purchase price: 320,000. Monthly rent: 2,000. Annual rent: 24,000. Gross yield: 7.5%.

Now deduct operating costs: annual property taxes 3,800; annual insurance 1,200; vacancy (5%) 1,200; maintenance (1% of value) 3,200; management fee (10% of rent) 2,400. Total annual expenses: 11,800. Net NOI: 24,000 - 11,800 = 12,200. Net yield: 12,200 / 320,000 x 100 = 3.8%.

At 3.8% net yield, this property barely beats a savings account or index fund before mortgage costs are considered. That 7.5% gross yield looked attractive. The 3.8% net yield tells a different story.

Yield vs cash flow: which matters more?

Yield is a price-normalised ratio useful for comparing properties. Cash flow is the actual money in or out of your account each month after all costs including your mortgage payment. A property can have a strong yield but negative cash flow if the mortgage rate is high relative to the yield. Always calculate both - use yield to screen properties and cash flow to decide whether the deal works financially.

Cap rate is a related metric that removes financing from the equation entirely: cap rate = NOI / purchase price x 100. It is the same as net yield when no mortgage is involved. Investors use cap rate to evaluate a property's income potential independent of how it is financed, making it useful for comparing deals with different leverage levels.

Common mistakes when calculating rental yield

• Using gross yield to make buy/no-buy decisions - gross yield overstates returns by 30-60% compared to net yield in most markets.
• Underestimating vacancy - even a property with stable tenants has turnover every 1-2 years; budget 5% minimum.
• Forgetting maintenance - older properties can cost far more than 1% per year; always inspect before buying.
• Ignoring management fees - if you plan to self-manage now but might outsource later, model the 8-12% fee from day one.
• Not adjusting for purchase costs - legal fees, stamp duty, and inspection costs increase your effective purchase price and reduce your real yield.

Use the Rental Property Profit Calculator

The Rental Property Profit Calculator does all of this automatically. Enter your rent, purchase price, mortgage details, and operating costs and it calculates gross yield, net yield, cap rate, monthly cash flow, and cash-on-cash return in one place - so you have the complete picture before you make an offer.

Frequently asked questions

What is a good rental yield?

A good yield depends on your market and investment goals. In high-cost cities (London, Sydney, New York), gross yields of 3-4% are common because investors buy for appreciation. In regional and secondary markets, investors typically target 6-8% gross yield (4-6% net). A net yield below the prevailing mortgage rate means negative leverage - the property costs more to finance than it earns.

Is net yield the same as ROI?

No. Net yield compares income to purchase price, ignoring financing. ROI (return on investment) typically measures cash-on-cash return: the actual cash income as a percentage of the cash you invested (usually the deposit). On a leveraged purchase, cash-on-cash return can be significantly higher or lower than yield depending on the interest rate.