What Is Gross Yield?
Gross yield = gross rental income ÷ purchase price. A $300,000 property with $36,000 annual gross rent has a 12% gross yield. It's a quick filter—no expense or financing math. Cap-rate = noi ÷ price; net-yield = cash flow ÷ investment. Gross yield is the highest of the three because it ignores operating-expenses and debt. Use it for initial screening: below 8% gross yield often means the deal won't pencil for cash-flow investors.
Gross yield is the ratio of gross rental income to purchase price—expressed as a percentage. It's a quick screening metric before factoring in expenses and financing.
At a Glance
- What it is: Gross rent ÷ purchase price
- Why it matters: Quick screening; no expense or debt math
- Typical range: 8–14% for rental properties
- Use it for: Initial filter; deal-flow screening
- Caveat: Doesn't account for expenses or financing
Gross Yield = Gross Rental Income ÷ Purchase Price
How It Works
The formula. Gross yield = annual gross rental income ÷ purchase price. $30,000 ÷ $350,000 = 8.6%. Simple.
Screening. If gross yield is 6%, expenses and debt will almost certainly push cash-flow negative. If it's 12%, there's room. Many investors use gross yield as a first filter: below 9–10%, they skip the full deal-analysis unless there's a value-add angle.
Relation to cap-rate. Cap-rate = noi ÷ price. Noi = gross rent − vacancy-loss − operating-expenses. So gross yield minus vacancy and expense ratios ≈ cap rate. A 12% gross yield with 8% vacancy and 40% expenses: EGI ≈ 11%, noi ≈ 6.6% of price—roughly a 6.6% cap.
Market variation. Rent-premium markets (coastal, high-demand) may have lower gross yields (6–8%). Below-market-rent or value-add markets can show 12–15%. Know your market.
Real-World Example
Ava in Memphis. Ava screened 40 deals. She rejected anything under 9% gross yield without a full analysis. A 4-unit listed at $385,000 with $3,800/month ($45,600/year) gross had 11.8% gross yield—passed the filter. She ran full deal-analysis: 8% vacancy, 42% expenses. Noi = $1,956. At 6.5% cap, value = $30,092. Seller wanted $385,000. She passed—the deal didn't pencil. Gross yield got her to look; full analysis saved her from overpaying.
Pros & Cons
- Fast screening
- No expense or financing math
- Easy to compare across deals
- Surfaces obviously weak deals
- Doesn't account for expenses or financing
- Can miss value-add nuance
- Market-dependent—8% in one market may be fine
Watch Out
- Optimistic rent: Use market-rent from rental-comps, not listing projections
- Expense blindness: High gross yield doesn't mean high cash-flow if expenses are high
Ask an Investor
The Takeaway
Gross yield is a quick screening tool. Use it to filter deal-flow. Don't use it for the final go-no-go-decision—run full deal-analysis with noi and cash-flow.