How to Calculate Rental Yield (Gross and Net)
Rental yield tells you what annual income a property generates as a percentage of its price. There are two versions — gross and net — and knowing the difference is essential for evaluating any buy-to-let investment.
Gross Rental Yield
Gross yield = (annual rent ÷ property purchase price) × 100. Example: a property bought for $300,000 that rents for $2,000/month generates $24,000/year — gross yield of 8%. Simple and fast, but ignores every cost you'll actually face.
Net Rental Yield
Net yield = ((annual rent − annual expenses) ÷ property price) × 100. Expenses include property management (8–12% of rent), maintenance (1–2% of property value per year), insurance, property taxes, and vacancy. With $7,000 in annual expenses, net income is $17,000 — net yield drops to 5.7%. This is the number that actually reflects your return.
What Affects Yield
Purchase price: paying less for the same rent boosts yield directly. Rent level: location, condition, and local demand set the ceiling. Expense control: self-managing vs. using an agency can swing net yield by 1–2 percentage points. Financing: mortgage payments don't appear in yield calculations, but they absolutely affect cash flow.
A Quick Rule of Thumb
Net yield of 4–5% in a major city is generally considered acceptable. Net yield of 7%+ usually signals higher risk (lower-demand area, older property, or aggressive rent assumption). Always verify that the rent figure used is actual current rent, not an optimistic projection.