Rental Yield: worked example
| Property price | $320,000 |
|---|---|
| Annual rent | $26,400 |
| Annual expenses | $8,200 |
| Gross rental yield | 8.3% |
| Net rental yield | 5.7% |
Common error: Comparing a gross yield with a mortgage rate. Yield ignores financing and costs, so it says little about what you would earn after the loan.
Rental Yield: formula
Yield does not include appreciation, financing, taxes or vacancy unless you build them into rent and expenses. A high yield often reflects higher risk, such as a weaker area or older building. Check whether a quoted yield uses scheduled rent or income after vacancy and expenses.
In other countries the term is used the same way, but costs and taxes differ.
Property price is what you pay or the current market value, annual rent is a full year of rent at expected occupancy, and annual expenses cover taxes, insurance, maintenance, management and other running costs, but not the mortgage. Use current local rents from listings and recent lettings, not the highest figure. The yields differ: gross yield ignores expenses, and net yield subtracts them, so always note which one is quoted.
Rental Yield: changing Property price
| Property price | Gross rental yield | Net rental yield |
|---|---|---|
| $256,000 | 10.3% | 7.1% |
| $288,000 | 9.2% | 6.3% |
| $320,000 (example) | 8.3% | 5.7% |
| $352,000 | 7.5% | 5.2% |
| $384,000 | 6.9% | 4.7% |
Rental Yield: compare input ranges
| Input | Tested from | To | Gross rental yield: low input | Gross rental yield: high input | Swing |
|---|---|---|---|---|---|
| Property price | $288,000 | $352,000 | 9.2% | 7.5% | 1.7% (20%) |
| Annual rent | $23,760 | $29,040 | 7.4% | 9.1% | 1.6% (20%) |
| Annual expenses | $7,380 | $9,020 | 8.3% | 8.3% | 0.000% |
Rental Yield: individual input comparisons
| Input | Value | Gross rental yield | Net rental yield |
|---|---|---|---|
| Property price | $256,000 | 10.3% | 7.1% |
| $288,000 | 9.2% | 6.3% | |
| $320,000 | 8.3% | 5.7% | |
| $352,000 | 7.5% | 5.2% | |
| $384,000 | 6.9% | 4.7% | |
| Annual rent | $21,120 | 6.6% | 4.0% |
| $23,760 | 7.4% | 4.9% | |
| $26,400 | 8.3% | 5.7% | |
| $29,040 | 9.1% | 6.5% | |
| $31,680 | 9.9% | 7.3% | |
| Annual expenses | $6,560 | 8.3% | 6.2% |
| $7,380 | 8.3% | 5.9% | |
| $8,200 | 8.3% | 5.7% | |
| $9,020 | 8.3% | 5.4% | |
| $9,840 | 8.3% | 5.2% |
Rental Yield: combined input changes
| Property price / Annual rent | $21,120 | $26,400 | $31,680 |
|---|---|---|---|
| $256,000 | 8.3% | 10.3% | 12.4% |
| $288,000 | 7.3% | 9.2% | 11.0% |
| $320,000 | 6.6% | 8.3% | 9.9% |
| $352,000 | 6.0% | 7.5% | 9.0% |
| $384,000 | 5.5% | 6.9% | 8.3% |
Rental Yield: which assumptions move the result?
Rental Yield: values and definitions
| Quantity and definition | Value used |
|---|---|
| Property price | $320,000 |
| Annual rent | $26,400 |
| Annual expenses — Taxes, insurance, maintenance, management and vacancy allowance. Leave out the mortgage. | $8,200 |
| Gross rental yield | 8.3% |
| Net rental yield | 5.7% |
Rental Yield: half and double Property price
| Property price | Gross rental yield |
|---|---|
| $160,000 | 16.5% |
| $320,000 | 8.3% |
| $640,000 | 4.1% |
Real Estate Investing calculators: 1% Rule Calculator, Land Acreage Calculator, Cap Rate Calculator, Cash-on-Cash Return Calculator, Rental Cash Flow Calculator, Net Operating Income (NOI) Calculator.
Rental yield is the income a property returns for its price. Rent of $26,400 on a $320,000 home is a gross yield of 8.25 percent. Take out $8,200 a year for taxes, insurance, upkeep and vacancy and the net yield falls to about 5.7 percent.
The gap between the two is why gross yield alone flatters a property and why two listings with the same rent can differ a lot.
Include a vacancy allowance and a repair budget in the expenses. A net yield that assumes every month is rented and nothing breaks is a best case.
For the same idea before financing see the cap rate calculator, and the gross rent multiplier page for a related screen. The one percent rule and cash-on-cash calculators give quick and levered checks. The vacancy loss and property management fee pages refine the costs.
What is the difference between gross and net rental yield?
Gross yield is annual rent divided by price. Net yield subtracts operating costs first, so it shows what the property really earns.
What is a good rental yield?
Compare the stated expense definition, property condition, vacancy assumptions and market risks. Gross rent divided by price omits operating costs, and net yield depends on which costs are included. A universal target percentage does not establish whether a particular property is a suitable investment.
Should yield include the mortgage?
No. Yield is measured before financing and the mortgage. To include the mortgage payment and the cash you invested, use cash-on-cash return instead.