Property Rental Yield Calculator
Calculate Gross and Net ROI for Investment Properties
Understanding Rental Yield for Property Investing
Rental yield is a critical metric for real estate investors used to evaluate the potential return on a property investment. Unlike capital growth, which focuses on the property's increase in value over time, rental yield focuses on the cash flow generated relative to the property's cost.
Gross Yield vs. Net Yield: What's the Difference?
Gross Rental Yield: This is the most basic calculation. It is the annual rental income divided by the property purchase price. It provides a quick way to compare different properties before accounting for costs.
Net Rental Yield: This is a more accurate measure of profitability. It takes the annual rental income, subtracts all operating expenses (property taxes, insurance, maintenance, management fees), and then divides that figure by the purchase price.
A Realistic Example
Suppose you purchase a property for $500,000. You rent it out for $2,500 per month, totaling $30,000 per year.
- Gross Yield: ($30,000 / $500,000) × 100 = 6.0%
- If your annual expenses (taxes, insurance, and repairs) are $5,000:
- Net Yield: (($30,000 – $5,000) / $500,000) × 100 = 5.0%
What is a Good Rental Yield?
While "good" varies by market, most investors target a gross yield of 5-8% in urban areas. In high-growth regions, yields might be lower (3-4%) because investors are betting more on capital appreciation. In more stable, cash-flow focused markets, yields can exceed 10%.