Comprehensive Guide
Learn more in our Investing Guide.
How it works
Rental yield is the income return on a property, before any appreciation. Gross yield divides annual rent by price — the market's headline number, typically 4-8% depending on city. Net yield subtracts operating expenses first, and that is the number that pays the bills: taxes, insurance, maintenance, property management and vacancy all come out of the rent before you see a dollar. The gap between gross and net is the discipline of the tool — a 7% gross yield in a high-tax, high-maintenance market can be a 3.5% net, while a 5% gross with cheap taxes and good tenants can net 4%. Neither number counts financing: if you borrow, the mortgage interest is an additional drag on cash flow, which the cap rate and BRRRR calculators model separately. Use gross yield to screen markets fast, net yield to underwrite a specific property, and treat the expenses input as the honest bit — underestimate it and the yield flatters a losing deal.Formula
Gross = rent / price | Net = (rent - expenses) / price
Tips
- Screen with gross yield, decide with net yield — never skip the expenses line.
- Vacancy is a real annual cost; budget 5-8% of rent even in strong markets.
- Management at 8-10% of rent is standard if you will not self-manage.
- Compare net yield against a passive index fund — the property should beat it for the headaches.
Frequently asked questions
What is a good rental yield?
Gross yields of 5-10% cover most viable markets, with high-cost cities at 3-5% and midwest/southern US or secondary UK cities at 7-9%. Net yield is the decision number — after expenses, aim for 4%+ net on unleveraged deals, or the property is mostly a speculative bet on appreciation.
What expenses should I include?
Property tax, insurance, maintenance (1-2% of value annually), vacancy allowance, property management, HOA dues, and utilities you pay. Exclude mortgage payments — those are financing, handled separately by the cap rate and BRRRR models.
Does rental yield include appreciation?
No — yield is income only. Appreciation is a separate return stream that many investors count on, especially in low-yield markets. A full underwriting adds appreciation and financing; yield alone describes the cash income.
What is the difference between gross and net yield?
Gross yield ignores all costs: rent divided by price. Net yield subtracts operating expenses first — the income that actually lands. The gap between them is the single most useful diagnostic on any deal: expenses are where bad deals leak.