Rental yield is a fundamental real estate metric that measures the annual income produced by an investment property relative to its purchase price or market value. It allows real estate investors to compare income efficiency across different properties, asset classes, and regional markets.
Yield is divided into two primary calculations: Gross Rental Yield and Net Rental Yield. Gross yield provides a quick screening ratio based on top-line revenue, whereas net yield accounts for all recurring operating expenses, maintenance reserves, and property taxes.
Gross vs Net rental yield math
Gross Rental Yield is calculated as: Gross Yield = (Annual Gross Rent / Total Property Purchase Price) × 100. If a property is purchased for $320,000 and generates $2,100 per month in gross rent ($25,200 annually), its gross rental yield is ($25,200 / $320,000) × 100 = 7.875%.
Net Rental Yield provides a clearer evaluation of true cash profitability by incorporating annual operating expenses: Net Yield = [(Annual Gross Rent - Annual Operating Expenses) / Total Property Acquisition Cost] × 100. Operating expenses include property taxes, landlord insurance, HOA fees, property management fees (typically 8% to 10% of rent), maintenance reserves (1% to 2% of property value per year), and vacancy allowances (5% of gross rent).
Net yield example and Cash-on-Cash return benchmarks
Continuing with the $320,000 property ($4,000 in initial closing costs, total cost $324,000), assume annual gross rent of $25,200 and total operating expenses of $7,800 ($3,200 property taxes, $1,200 insurance, $2,016 management, $1,384 repairs/vacancy). Net annual income is $25,200 - $7,800 = $17,400. The net rental yield is ($17,400 / $324,000) × 100 = 5.37%.
When financing with a mortgage, investors also measure Cash-on-Cash (CoC) return: CoC Return = (Annual Cash Flow After Debt Service / Total Cash Invested) × 100. As a benchmark rule of thumb, gross rental yields above 7% to 8% and net yields above 5% are generally considered strong in residential real estate. You can evaluate leveraged property performance using an ROI calculator or mortgage calculator.