$18,000 of rent becomes $11,100 of income once costs and vacancy are taken
Annual rent of $18,000 on a $300,000 property is a 6% gross yield. A 5% vacancy allowance removes $900 and $6,000 of expenses removes the rest, leaving $11,100 — a net yield of 3.7%. Almost 40% of the gross yield disappears before it reaches you.
Gross yield = annual rent / price x 100 ; Net yield = (effective rent - expenses) / price x 100
Gross yield is the figure quoted in listings and in conversation; net yield is the one that pays you. The gap varies enormously by property and by jurisdiction, which is why comparing two properties on gross yield alone routinely picks the wrong one — a higher gross yield with heavier costs can net less than a lower one that runs cheaply.
Everything except the mortgage
Operating expenses should cover property tax, insurance, management, repairs, service charges, and any utility the landlord pays. The mortgage is excluded, because yield measures the property rather than the deal — the same building has the same net yield whether bought with cash or borrowed.
The $6,000 in the default is 33% of gross rent, which is at the optimistic end. Real figures commonly reach 35-50% once management and honest maintenance reserves are included, and in jurisdictions with high property taxes or service charges they go higher still. Understating this line is the most common way a rental looks better on paper than in the bank.
It compares income; it says nothing about capital growth
Yield captures one half of a property return. Markets with high yields often have modest capital growth, and expensive metropolitan markets frequently run yields near 3% while relying on appreciation. Ranking purely by yield systematically selects for the first kind, which may or may not be what you want.
It is also the right basis for comparing a property against a bond or a savings rate, provided the comparison is net yield against those alternatives after tax — and provided you account for the fact that a property is illiquid, undiversified, and requires work that a bond does not.
Current rent, today’s costs, and a price you can actually buy at
The purchase price should include acquisition costs — stamp duty or transfer tax, legal fees, survey — because yield measured against the headline price overstates the return on what you actually spent. In markets with high transaction taxes this alone can move net yield by half a point.
Neither rent nor expenses grow here, so this is a first-year figure. Over time rent typically rises with inflation while a fixed mortgage does not, which improves the leveraged return but not the unleveraged yield shown on this page.
Frequently Asked Questions
What is the difference between gross and net rental yield?
Gross yield is annual rent divided by the property price, with no costs taken out. Net yield first subtracts running expenses and an allowance for vacancy, so it reflects the income you actually keep. Net yield is always lower and is the more honest comparison.
What is a good rental yield?
There is no universal answer because it depends on the country, city, property type, and interest rates. Some investors look for net yields above a local benchmark, but a high yield can also signal higher risk. Use it to compare similar properties rather than as a pass or fail score.
Should I use the purchase price or current value?
Both are used. Yield on the purchase price shows the return on what you paid. Yield on current market value shows what the property returns today and helps decide whether to keep or sell. This calculator uses the price you enter as the denominator.
Does rental yield include the mortgage?
No. Rental yield measures the property’s return independent of how it is financed, so mortgage payments are excluded. To see cash flow after a loan, use a rental cash flow or cash-on-cash return calculator instead.
How does vacancy affect the yield?
Vacancy reduces the rent you actually collect, which lowers net yield. A 5% vacancy rate assumes the property is empty about two and a half weeks a year. Leaving vacancy out overstates the realistic return.
Why is net yield so much lower than gross yield?
Running costs such as management, maintenance, insurance, and tax can easily consume a third or more of the rent, and vacancy removes more. The bigger the gap between the two yields, the more of the rent is being eaten by costs.
How is rental yield different from cap rate?
Net rental yield and the capitalization rate are closely related: both divide net income by a property value. Cap rate conventionally uses net operating income and current market value, while net yield is often quoted against the purchase price. Use a cap rate calculator for the standard investment metric.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Returns are assumptions, not guarantees. Actual results may vary because of market performance, taxes, fees, inflation, and timing. This is an educational projection, not investment advice.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested that net yield never exceeds gross yield and that the gap is exactly expenses plus vacancy over the price.
Frequently Asked Questions now show on the page: 7 answers, checked in a page-by-page audit.
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