Rental yield is the annual return generated by a rental property expressed as a percentage of its value. It is the most widely used metric for comparing investment properties and evaluating whether a property is priced to generate adequate returns.
Gross Rental Yield
Gross Rental Yield = (Annual Rent / Property Value) × 100
A property worth $400,000 renting for $2,000/month has a gross yield of ($24,000 / $400,000) × 100 = 6.0%. Gross yield is quick to calculate and useful for filtering properties, but it ignores all operating costs.
Net Rental Yield
Net Rental Yield = ((Annual Rent − Annual Expenses) / Property Value) × 100
Subtracting $8,000 in annual expenses from the same property: ($24,000 − $8,000) / $400,000 × 100 = 4.0% net yield. The 2-point gap between gross and net is the cost of actually owning and operating the property. Use the Rental Yield Calculator to model both.
Rental Yield vs Cap Rate
For residential property, these terms are often used interchangeably. The technical distinction is minor: cap rate uses Net Operating Income (which includes a vacancy allowance deducted from gross income), while net yield sometimes uses actual collected rent. When comparing residential properties, both metrics tell you essentially the same thing.
What Determines Yield?
Yield is driven by the ratio of rent to price. Markets with high property prices relative to rents (inner-city, coastal) have low yields. Markets with lower property prices relative to rents (regional, suburban) have higher yields. High-yield markets often compensate investors for lower expected capital growth or higher management demands — not necessarily better total returns.