How to Calculate Rental Yield (Gross vs Net)

Gross yield: the quick screen

Gross yield is the fast first number for comparing properties. Multiply the monthly rent by 12 for the annual rent, divide by the price, and multiply by 100. A $300,000 flat let for $1,500 a month gives $18,000 ÷ $300,000 × 100 = 6% gross.

Because it ignores costs, gross yield always overstates the return. It is best used to shortlist candidates quickly, not to decide — two flats with the same gross yield can have very different net returns once charges are counted.

Net yield: the number that matters

Net yield subtracts the real cost of ownership before dividing by the price. Deduct property tax, insurance, management fees, maintenance, and an allowance for vacancy and non-payment. On that $18,000 rent, if costs total $4,800 a year, net rent is $13,200 and net yield is $13,200 ÷ $300,000 × 100 = 4.4%.

Net yield is what you actually keep before financing and tax, so it is the figure to compare against alternatives. A property that looks attractive on gross can turn ordinary on net once management and maintenance are honest inputs.

What counts as a good yield

There is no universal target; a good yield is one that beats safer returns by enough to justify the effort and risk. In expensive cities, prices are high relative to rents, so yields look low but investors bet on price growth. In cheaper areas, yields are higher but so is the risk of vacancy and slower appreciation.

The disciplined approach is to compute net yield with realistic costs, compare it to what you could earn elsewhere, and only then weigh the potential for the property itself to gain value over time.

Frequently asked questions

What is the difference between gross and net yield?

Gross yield divides annual rent by the price and ignores costs. Net yield first subtracts running costs — tax, insurance, management, maintenance, vacancy — giving the return you actually keep.

Should I use the price or the total invested?

Total invested is more honest: add closing costs and any renovation to the price. It lowers the yield slightly but reflects the real cash committed, so comparisons across deals are fairer.

Does rental yield include mortgage payments?

No. Standard rental yield is calculated before financing, so it measures the property itself. To see the return on your own cash after a loan, look at cash-on-cash return instead.

Is a higher yield always better?

Not necessarily. Very high yields often come with higher risk — weaker locations, more vacancy, or heavier maintenance. Balance yield against the stability of the rent and the prospects for price growth.