The Quick Answer
Rental yield is the annual rental income from a property expressed as a percentage of its value. The formula:
Gross Rental Yield = (Annual Rent ÷ Property Value) × 100
A property worth $300,000 that rents for $2,000 per month earns $24,000 per year, giving a gross yield of 8.0%. Subtract annual operating expenses to get the net yield — a more realistic measure of actual returns.
Use the rental yield calculator to compute gross and net yield instantly.
Why Rental Yield Matters
Rental yield is the standard comparison metric for income-producing properties. It lets you answer one question: how much income does this property generate relative to its cost?
Without yield, you can't meaningfully compare:
- A $200,000 house renting for $1,400/month vs. a $500,000 apartment renting for $2,800/month
- Properties in different cities or neighborhoods
- Whether a deal is above or below average for its market
The first property yields 8.4% gross. The second yields 6.7%. Same monthly rent difference, very different return profiles.
Gross vs. Net Rental Yield
Gross Rental Yield
The simpler version. Divides total annual rent by property value:
Gross Yield = (Annual Rent ÷ Property Value) × 100
Gross yield is fast to calculate and useful for initial screening. It does not account for any expenses.
Net Rental Yield
The more useful version. Subtracts annual operating expenses before dividing:
Net Yield = ((Annual Rent − Annual Expenses) ÷ Property Value) × 100
Net yield reflects what you actually keep after running costs. It is closer to the property's true income return.
Which should you use?
- Gross yield for quick comparisons, early-stage property screening, and market-level benchmarks
- Net yield for evaluating specific deals, comparing properties with different expense structures, and making purchase decisions
Most published market averages are gross yields. When someone quotes a yield without specifying, it's almost always gross.
How to Calculate Rental Yield — Step by Step
Step 1: Determine Annual Rental Income
If you know monthly rent, multiply by 12:
- $1,800/month × 12 = $21,600/year
If you know weekly rent (common in some markets like Australia and the UK):
- $450/week × 52 = $23,400/year
Step 2: Determine the Property Value
Use either:
- Purchase price — shows the yield on your original deal
- Current market value — shows today's yield based on what the property is worth now
Be consistent. If comparing two properties, use the same basis for both.
Step 3: Calculate Gross Yield
Divide and multiply by 100:
- $21,600 ÷ $320,000 × 100 = 6.75% gross yield
Step 4: Sum Annual Operating Expenses (for Net Yield)
Common expenses:
| Expense | Typical Range |
|---|---|
| Property tax | Varies by location (0.5–2.5% of value) |
| Landlord insurance | $800–$2,500/year |
| Maintenance & repairs | 1–2% of property value/year |
| Property management | 8–12% of gross rent (if hired) |
| Vacancy allowance | 5–10% of annual rent |
| HOA/condo fees | $0–$500+/month |
Step 5: Calculate Net Yield
Subtract total expenses from annual rent, then divide by property value:
- Annual rent: $21,600
- Expenses: $7,400
- Net income: $14,200
- Net yield: $14,200 ÷ $320,000 × 100 = 4.44% net yield
Worked Examples
Example 1 — Suburban Single-Family Home
- Property value: $350,000
- Monthly rent: $2,200 (annual: $26,400)
- Expenses: Property tax $4,200 + Insurance $1,400 + Maintenance $3,500 + Vacancy $1,320 = $10,420
| Metric | Value |
|---|---|
| Gross yield | ($26,400 ÷ $350,000) × 100 = 7.54% |
| Net yield | (($26,400 − $10,420) ÷ $350,000) × 100 = 4.57% |
| Monthly net income | ($26,400 − $10,420) ÷ 12 = $1,332 |
Solid gross yield. Net yield above 4% after all costs — positive cash flow even before considering mortgage tax deductions.
Example 2 — Urban Studio Apartment
- Property value: $250,000
- Monthly rent: $1,350 (annual: $16,200)
- Expenses: Property tax $2,500 + Insurance $900 + HOA $3,600 + Maintenance $1,500 + Vacancy $810 = $9,310
| Metric | Value |
|---|---|
| Gross yield | ($16,200 ÷ $250,000) × 100 = 6.48% |
| Net yield | (($16,200 − $9,310) ÷ $250,000) × 100 = 2.76% |
| Monthly net income | ($16,200 − $9,310) ÷ 12 = $574 |
The HOA fee significantly eats into net yield. This is common with condos and apartments — always check HOA costs before assuming a studio will cash-flow.
Example 3 — High-Yield Duplex in Affordable Market
- Property value: $180,000
- Monthly rent: $750 per unit × 2 = $1,500 (annual: $18,000)
- Expenses: Property tax $1,800 + Insurance $1,100 + Maintenance $2,700 + Vacancy $1,800 = $7,400
| Metric | Value |
|---|---|
| Gross yield | ($18,000 ÷ $180,000) × 100 = 10.00% |
| Net yield | (($18,000 − $7,400) ÷ $180,000) × 100 = 5.89% |
| Monthly net income | ($18,000 − $7,400) ÷ 12 = $883 |
Multi-unit properties in lower-cost markets often produce the best yields. The trade-off: potentially higher vacancy and tenant turnover, plus hands-on management.
What Is a Good Rental Yield?
General benchmarks (gross yield):
| Gross Yield | Rating | Notes |
|---|---|---|
| Below 3% | Poor | Likely negative cash flow after expenses |
| 3–5% | Average | Common in expensive urban markets; relies on appreciation |
| 5–7% | Good | Solid cash flow for most landlords |
| 7–10% | Very good | Strong income property |
| Above 10% | Excellent | Verify sustainability — high yields can signal risk |
Context matters. A 4% gross yield in San Francisco or London may be perfectly normal and paired with strong appreciation. A 4% yield in a market with flat property values and rising expenses is a weaker proposition.
Net yield benchmarks are roughly 1.5–3 percentage points below gross, depending on the expense structure of the market.
What Affects Rental Yield?
Factors that increase yield
- Lower purchase price (relative to rent levels)
- Higher rents (strong demand, desirable location, recent renovations)
- Multi-unit properties (more rent per property value)
- Low operating costs (new construction, no HOA, favorable tax jurisdiction)
Factors that decrease yield
- High purchase prices (competitive markets, bidding wars)
- High property taxes or HOA fees
- High maintenance (older buildings, large properties)
- Vacancy (slow rental market, undesirable features, poor management)
- Regulatory costs (rent control compliance, mandatory inspections)
Rental Yield vs. Cap Rate vs. ROI
These three metrics are often confused. Here's how they differ:
| Metric | Formula | Measures |
|---|---|---|
| Gross yield | Annual rent ÷ Property value | Income relative to property cost (before expenses) |
| Net yield / Cap rate | (Annual rent − Expenses) ÷ Property value | Income relative to property cost (after expenses) |
| Cash-on-cash ROI | Annual net income ÷ Cash invested | Return on your actual money (down payment + closing costs) |
Example: You buy a $300,000 property with $60,000 down. It yields 8% gross ($24,000 rent), and after $8,000 expenses, net income is $16,000.
- Gross yield: 8.0%
- Net yield: 5.3%
- Cash-on-cash ROI: $16,000 ÷ $60,000 = 26.7%
The ROI is much higher because you're measuring return on the $60,000 you actually invested, not the full $300,000 property value. Leverage amplifies returns (and risk).
Common Mistakes
1. Forgetting vacancy
Assuming 12 full months of rent is unrealistic. Even in strong markets, budget for at least 2–4 weeks of vacancy per year to account for tenant turnover, cleaning, and re-listing time.
2. Ignoring HOA and condo fees
A $400/month HOA fee is $4,800/year — enough to cut a 7% gross yield to a 3% net yield. Always check association fees before running the numbers.
3. Using gross yield to make purchase decisions
Gross yield is a screening tool, not a decision metric. Two properties with the same gross yield can have wildly different net yields depending on their expense structure.
4. Comparing yields across different cost environments
A 6% gross yield in a high-tax state (property tax 2%+ of value) produces very different cash flow than a 6% yield in a low-tax state (property tax 0.5%).
5. Ignoring capital expenditures
Routine maintenance is predictable. But roofs, HVAC systems, and plumbing eventually need replacement. These big-ticket items don't happen every year, but they will happen. Some investors add a "capex reserve" of 1–2% of property value per year to their expense estimates.
6. Confusing yield with total return
Yield only measures income. Total return includes appreciation (or depreciation) of the property value. In high-cost markets, most of the return comes from appreciation. In affordable markets, most comes from yield. Neither is inherently better — they're different strategies.
Frequently Asked Questions
What is rental yield?
Rental yield is the annual rental income from a property expressed as a percentage of its value. Gross yield uses total rent before expenses; net yield subtracts operating costs first.
How do I calculate rental yield?
Gross yield: multiply monthly rent by 12, divide by property value, multiply by 100. Net yield: subtract annual expenses from annual rent first, then divide by property value and multiply by 100.
What is the difference between gross and net rental yield?
Gross yield ignores expenses. Net yield subtracts operating costs (property tax, insurance, maintenance, management, vacancy) before calculating the percentage. Net yield is always lower than gross yield.
What is a good rental yield percentage?
Generally, 5–7% gross is considered good. Below 3% is poor; above 10% is excellent but should be checked for sustainability. Benchmarks vary by market.
Is rental yield the same as cap rate?
They are very similar. Both divide net operating income by property value. "Cap rate" is the standard term in commercial real estate; "net rental yield" is more common for residential properties. The math is essentially the same.
Is rental yield the same as ROI?
No. Yield divides income by property value. ROI divides income by your actual cash invested (usually the down payment). Because most properties are leveraged, ROI on cash invested is higher than the yield percentage.
Should I include mortgage payments when calculating yield?
No. Mortgage payments are financing costs, not property operating costs. Including them makes it impossible to compare properties fairly because the metric would depend on your loan terms. Use cash-on-cash ROI if you want to account for financing.
Does location affect rental yield?
Yes, significantly. High-demand urban areas tend to have lower yields (3–5%) because property prices are high relative to rents. More affordable markets and smaller cities often have higher yields (6–10%+).
How does property type affect yield?
Multi-unit properties (duplexes, triplexes) typically produce higher yields than single-family homes because you collect more rent relative to the property value. Condos may have lower net yields due to HOA fees.
What is a vacancy allowance?
A vacancy allowance is an estimate of lost rent due to periods when the property is unoccupied — between tenants, during repairs, or while being re-listed. A common estimate is 5–10% of annual rent.
How often should I recalculate rental yield?
At minimum, recalculate when rent changes, property value changes significantly, or expenses change. Many landlords recalculate annually as part of reviewing their property portfolio's performance.
Can rental yield be negative?
Net yield can be negative if annual expenses exceed annual rent. This means the property costs more to operate than it earns in income. It does not necessarily mean the investment is bad — appreciation may compensate — but negative cash flow requires careful planning.
What is a yield trap?
A yield trap is a property that appears to have a high yield but is misleading — often because the property is in a declining area, rents are unsustainable, or major repairs are imminent. Unusually high yields should always be investigated.
Summary
Rental yield is the fundamental metric for evaluating property income. Use gross yield for quick screening, net yield for real decisions. Always include vacancy and maintenance in your expense estimates. And remember: yield is one number, not the whole story. Location, property condition, tenant quality, and market trends all affect whether a property is truly a good investment.