How to Calculate Rental Yield (Gross & Net, With Example)

By Ricardo Lau Cooper, Senior Financial Data Analyst · LinkedIn

Rental yield tells you how much income a property returns relative to what it costs. It is the fastest way to compare two rental deals — and to spot a bad one before you buy. This guide shows both formulas (gross and net), a full worked example, and what counts as a good yield.

What is rental yield?

Rental yield is the annual rent expressed as a percentage of the property's value or purchase price. There are two versions: gross yield uses only the rent; net yield subtracts the running costs first. Gross yield is useful for quick screening; net yield is the number that actually decides whether a deal makes money.

Gross rental yield formula

Gross yield = (Annual rent ÷ Purchase price) × 100

Example: a flat costs $250,000 and rents for $1,800 per month.

• Annual rent: $1,800 × 12 = $21,600
• Gross yield: $21,600 ÷ $250,000 = 8.64%

Net rental yield formula (the one that matters)

Net yield = ((Annual rent − Annual costs) ÷ Purchase price) × 100

Continuing the same example, realistic annual costs might be:

• Property tax: $2,400
• Insurance: $1,200
• Maintenance (1% of value): $2,500
• Vacancy allowance (5% of rent): $1,080
• Property management (8% of rent): $1,728

• Total annual costs: $8,908
• Net operating income: $21,600 − $8,908 = $12,692
• Net yield: $12,692 ÷ $250,000 = 5.08%

Notice the gap: 8.64% gross becomes 5.08% net. Deals are lost in that gap, so never compare properties on gross yield alone.

What is a good rental yield?

As a rule of thumb, a net yield of 5–8% is healthy in most markets. Below 4% the property may still make sense if you expect strong price growth, but the rent alone barely covers the risk. Always compare against local alternatives — a 6% net yield can be excellent in one city and mediocre in another.

Common mistakes when calculating yield

• Using the asking rent instead of the realistic market rent.
• Forgetting vacancy — assume at least a few empty weeks per year.
• Ignoring maintenance and management costs to make the numbers look better.
• Comparing a gross yield from one listing with a net yield from another.