Rental Property Yield Calculator
Calculate your gross and net rental yields to evaluate real estate investment performance.
Understanding Rental Property Yield
Rental yield is a fundamental metric used by real estate investors to measure the annual return on a property investment. It is expressed as a percentage of the property's value or cost. Understanding the difference between Gross and Net yield is crucial for making informed financial decisions.
Gross Rental Yield vs. Net Rental Yield
Gross Rental Yield is the simplest calculation. It is calculated by taking the total annual rent and dividing it by the property purchase price. While useful for quick comparisons, it ignores the costs of owning the property.
Net Rental Yield (often referred to as the Capitalization Rate or Cap Rate) provides a more accurate picture. It subtracts all annual operating expenses—such as property taxes, insurance, repairs, and management fees—from the annual rent before dividing by the total cost of the investment.
Example Calculation
If you purchase a property for $300,000 and spend $10,000 on closing costs, your total investment is $310,000. If the property rents for $2,000 per month ($24,000 per year) and your annual expenses are $5,000:
- Gross Yield: ($24,000 / $300,000) × 100 = 8.0%
- Net Yield: (($24,000 – $5,000) / $310,000) × 100 = 6.13%
What is a "Good" Rental Yield?
A "good" yield depends on the location and property type. Generally, investors look for a net yield between 5% and 8% in stable markets. Higher yields (10%+) often come with higher risks, such as lower-income neighborhoods or older properties requiring significant maintenance.