Introduction
Rental yield is the real estate equivalent of dividend yield. It tells you, as a percentage, how much rent a property produces against its purchase price.
Definition
Gross rental yield = annual rent ÷ property price. Net rental yield = (annual rent − expenses) ÷ property price.
Why It Matters
- Lets you compare properties across cities or asset classes
- Filters out overpriced markets before deeper diligence
- Reveals whether rental income covers the mortgage
The Formulas
Gross: $$ \text{Gross Yield (%)} = \frac{\text{Annual Rent}}{\text{Property Price}} \times 100 $$
Net: $$ \text{Net Yield (%)} = \frac{\text{Annual Rent} - \text{Annual Expenses}}{\text{Property Price}} \times 100 $$
Expenses include: property tax, insurance, maintenance (~1%/year), HOA, management fees, vacancy reserve.
Worked Example
- Property price: $250,000
- Monthly rent: $1,800 → annual $21,600
- Annual expenses: $6,800 (taxes, insurance, maintenance, vacancy)
Gross yield = 21,600 / 250,000 × 100 = 8.64% Net yield = (21,600 − 6,800) / 250,000 × 100 = 5.92%
Yield Benchmarks
| Market type | Typical gross yield |
|---|---|
| Tier-1 city (London, NYC) | 3–5% |
| Suburban / Tier-2 | 6–8% |
| Smaller cities / rural | 9–12% |
Higher yields often signal weaker appreciation prospects.
Benefits
- Simple, comparable metric
- Quick screen for cash-flow viability
- Independent of leverage
Limitations
- Ignores financing costs and tax
- Doesn't account for appreciation
- Sensitive to vacancy and expense assumptions
Common Mistakes
- Using asking rent instead of achieved rent
- Excluding vacancy (typically 5–10% of annual rent)
- Forgetting capital expenses (roof, HVAC) amortized over their life
- Comparing gross yields without netting expenses
Conclusion
Yield is the starting point, not the finish line. Use the Rental Yield Calculator below, then layer ROI and appreciation to see the full investment picture.