Understanding Rental Yield: Gross vs Net Explained

Rental yield is one of the first metrics investors use to screen properties. It takes seconds to calculate, it makes listings easy to compare, and it tells you right away whether a property deserves a closer look.

There are two versions, gross and net, and confusing them can lead to expensive mistakes.

What Is Rental Yield?

Rental yield expresses a property's annual rental income as a percentage of its value, which tells you how much income the property generates relative to its price.

It works much like the interest rate on a savings account. A 5% yield means the property brings in annual rent equal to 5% of its value.

Gross Rental Yield

Gross yield is the simpler calculation: annual rent divided by property price, with no deductions.

Gross Rental Yield = (Annual Rental Income ÷ Property Value) × 100

Gross Yield Example

• Property price: $400,000
• Monthly rent: $2,400
• Annual rent: $28,800

Gross Yield = $28,800 ÷ $400,000 × 100 = 7.2%

When to Use Gross Yield

Gross yield is useful for:

• Quick screening of multiple properties
• Comparing properties in the same market
• Initial feasibility checks
• Comparing to advertised yields (usually quoted gross)

It's fast, but it's incomplete, because it ignores every cost of ownership.

Net Rental Yield

Net yield subtracts operating expenses, which gives a more realistic picture of what the property actually returns.

Net Rental Yield = [(Annual Rent - Annual Expenses) ÷ Property Value] × 100

Or equivalently:

Net Rental Yield = (NOI ÷ Property Value) × 100

Net yield and cap rate are the same calculation under two different names.

Net Yield Example

• Property price: $400,000
• Annual rent: $28,800
• Annual expenses: $9,600 (taxes, insurance, maintenance, management, vacancy)
• NOI: $19,200

Net Yield = $19,200 ÷ $400,000 × 100 = 4.8%

At 4.8%, the net yield is well below the 7.2% gross yield. That 2.4% gap is the cost of actually owning the property.

The Yield vs. Growth Tradeoff

Markets tend to sort into two broad groups:

Which side you favor depends on your strategy. Cash flow investors prioritize high yields. Appreciation investors accept low yields in exchange for growth, and balanced investors look for moderate yields in growing markets.

Gross vs. Net at a Glance

• Gross yield = Annual rent ÷ Property value (quick and simple)
• Net yield = NOI ÷ Property value (accounts for expenses, same as cap rate)
• The gap between gross and net is your expense ratio
• Higher yields usually come with higher risk and lower appreciation
• Use net yield for serious analysis and keep gross yield for screening
• Compare yields within the same market and property type

Rental yield makes a good first filter. Gross yield tells you whether a deal is worth investigating, and net yield tells you whether it actually makes money, so learn to calculate both.