How to calculate rental yield (gross and net), with worked examples
Rental yield is the rent a property earns in a year, divided by what the property cost you, shown as a percentage. Gross yield uses the rent before any costs. Net yield subtracts the running costs first, and it's the number that actually tells you whether a rental is worth buying.
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This is general information, not financial advice. Figures below are examples, not market data.
The two formulas
Gross rental yield = annual rent ÷ purchase price × 100
Net rental yield = (annual rent − annual running costs) ÷ total cost of buying × 100
The "total cost of buying" is the price plus everything you paid to complete: transfer or stamp duty, registration fees, agent and legal fees, and any money spent getting the place ready to let.
Worked example 1: gross vs net
You buy a flat for 10,000,000 (any currency) and it rents for 50,000 a month.
- Annual rent: 50,000 × 12 = 600,000
- Gross yield: 600,000 ÷ 10,000,000 = 6.0%
Now the real costs. Buying costs (taxes, registration, fees) come to 700,000, so your total cost is 10,700,000. Every year you pay:
- Service charges / maintenance: 60,000
- Insurance: 10,000
- Repairs (budget 1 month's rent): 50,000
- Letting or management fees (8% of rent): 48,000
- Empty months (budget 1 month a year): 50,000
Running costs: 218,000 a year.
- Net income: 600,000 − 218,000 = 382,000
- Net yield: 382,000 ÷ 10,700,000 = 3.6%
The 6% headline turned into 3.6%. That gap is normal, and it's why gross yield alone is a sales number, not an investment number.
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Worked example 2: comparing two properties
| | Flat A | Flat B | |---|---|---| | Price | 8,000,000 | 12,000,000 | | Monthly rent | 45,000 | 60,000 | | Gross yield | 6.75% | 6.0% | | Annual running costs | 190,000 | 160,000 | | Net yield (on price + 7% buying costs) | 4.1% | 4.4% |
Flat A looks better on gross yield, but its higher service charges make Flat B the better earner. Always compare on net.
What to include as costs
- Service charges, society or building maintenance fees
- Property tax or municipal charges where the owner pays them
- Insurance (building and landlord cover)
- Repairs and wear and tear (a common rule of thumb is 1 month's rent a year, more for older buildings)
- Letting, management and renewal fees
- Empty periods between tenants
- Mortgage interest, if you want a "cash on cash" view (see below)
Leave out: the purchase price itself, and one-off upgrades that raise the value (those belong in your total cost).
Yield vs return on your cash
If you borrow, yield on the full price understates or overstates what your money earns. Cash-on-cash return = (net income − mortgage interest) ÷ the cash you actually put in. Borrowing raises this number when the net yield is above your interest rate, and lowers it when it's below. If your loan costs 9% and the property nets 4%, every borrowed rupee, dirham or pound loses you money each year until rents rise.
What's a "good" yield?
There's no single number. Compare net yield with:
- What you'd earn with no effort (a fixed deposit or government bond). If the property nets less than a safe deposit, you're betting entirely on the price going up.
- Your borrowing rate, if you use a mortgage.
- Similar properties in the same area, using real rents from current listings, not the developer's brochure.
Common mistakes
- Using the asking rent instead of what similar flats actually let for.
- Forgetting empty months and repairs.
- Using the price instead of price + buying costs.
- Comparing gross yield in one city with net yield in another.
For the full method (valuation, due diligence, rent vs buy and country-specific costs for the UK, US, India and Dubai), see Real Estate: Everything You Need to Know.
FAQ
Is rental yield the same as ROI?
No. Yield is income only. Total return also includes any change in the property's price, minus selling costs, over the years you own it.
Should I use the price or the market value?
Use what you paid (plus buying costs) to judge your own deal. Use today's market value to decide whether to keep or sell, because that's the money tied up now.
Monthly or annual rent?
Always annual. Multiply monthly rent by 12, then subtract budgeted empty months as a cost.
More playbooks on other topics: https://www.asendify.co/books/
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