What Is Net Yield?
Net yield = NOI ÷ purchase price (or total-investment). A $350,000 property with $24,500 NOI has a 7% net yield. It's cap-rate-like but you can use total-investment instead of price for leveraged deals. Gross-yield = gross rent ÷ price (before expenses). Net-yield = noi ÷ price (after expenses). Use it for screening: below 5% net yield often means thin cash-flow or overpaying.
Net yield is NOI (net operating income) divided by purchase price or total investment—expressed as a percentage. It's NOI yield after operating-expenses but before financing.
At a Glance
- What it is: NOI ÷ price or total investment
- Why it matters: Post-expense yield; screening metric
- Relation: Gross-yield > net-yield > cap-rate (when leveraged)
- Typical range: 5–10% for rental properties
- Use it for: Deal-analysis; comparison
Net Yield = Net Operating Income ÷ Purchase Price (or Total Investment)
How It Works
The formula. Net yield = NOI ÷ purchase price. Or NOI ÷ total-investment if you want to factor in rehab and closing-costs. NOI = gross-rental-income − vacancy-loss − operating-expenses. No mortgage in the math.
Relation to cap-rate. Cap-rate = NOI ÷ value. When purchase price = value, net yield = cap-rate. When you buy below value (value-add) or add rehab, total-investment can exceed price—net yield on total investment is lower, more conservative.
Relation to gross-yield. Gross-yield = gross rent ÷ price. Net-yield = noi ÷ price. The gap is operating-expenses and vacancy-loss. A 12% gross yield with 40% expense ratio and 5% vacancy: NOI ≈ 6.6% of price—6.6% net yield.
Screening. Net yield below 5% in most markets means either high expenses, low rent, or overpaying. Run full deal-analysis before deciding, but use net yield as a filter.
Real-World Example
Ava in Memphis. She screened a 4-plex at $385,000. Gross-rental-income: $45,600. Vacancy-loss 8%: $3,648. Operating-expenses 42%: $17,619. NOI = $24,333. Net yield = $24,333 ÷ $385,000 = 6.3%. She compared to another deal: $320,000 with $18,500 NOI = 5.8% net yield. The first had better net yield. She ran cash-flow and cash-on-cash-return next—net yield got her to look.
Pros & Cons
- Accounts for expenses
- Simple one-number filter
- Comparable across deals
- Doesn't include financing
- Use price vs. total investment—be consistent
Watch Out
- Expense accuracy: Net yield is only as good as your operating-expenses estimate. Understate expenses and you overstate net yield.
- Price vs. investment: For turnkeys, use price. For value-add, consider total-investment.
Ask an Investor
The Takeaway
Net yield = NOI ÷ price (or total-investment). Use it to screen deals. Below 5% often means trouble. Run full deal-analysis before the go-no-go-decision.