Why It Matters
Divide your annual rental income by the property's purchase price, then multiply by 100. A result of 8% means the property produces $8 in gross rent for every $100 invested.
At a Glance
- Expressed as a percentage of purchase price
- Two versions: gross (before expenses) and net (after expenses)
- Higher yield generally signals stronger income relative to cost
- Commonly used to compare properties across markets
- Does not account for appreciation or equity paydown
Gross Rental Yield = (Annual Rental Income / Property Purchase Price) × 100
How It Works
Rental yield comes in two forms, and knowing which one you're looking at matters.
Gross Rental Yield uses raw rent before any costs are subtracted:
Gross Rental Yield = (Annual Rental Income / Property Purchase Price) × 100
If a property costs $200,000 and rents for $1,500 per month, annual income is $18,000. Divide by $200,000 and multiply by 100 to get a gross yield of 9%.
Net Rental Yield subtracts operating expenses — property taxes, insurance, maintenance, management fees, and vacancies — before dividing:
Net Rental Yield = ((Annual Rental Income − Annual Expenses) / Property Purchase Price) × 100
Using the same property, if annual expenses total $5,400, net income drops to $12,600. Net yield becomes 6.3%.
Gross yield is quick and useful for early screening. Net yield is what you actually put in your pocket and is what should drive final investment decisions.
Rental yield connects directly to your cash-flow-statement, which tracks the real movement of money in and out of the property over time. It also feeds into your income-statement, where rent is the top-line revenue figure. When assessing a property's overall financial health, pair yield with your balance-sheet to see how much equity you hold relative to debt.
Yield is not the same as real-estate-wholesaling returns, which are event-driven profits from a single transaction rather than an ongoing income rate.
Real-World Example
Priya is evaluating two single-family rentals in different cities. Property A costs $180,000 and rents for $1,400 per month. Property B costs $320,000 and rents for $2,200 per month.
Gross yield for Property A: ($16,800 / $180,000) × 100 = 9.3% Gross yield for Property B: ($26,400 / $320,000) × 100 = 8.25%
On gross yield alone, Property A wins. But Priya digs deeper. Property A is in a high-tax county with older infrastructure — annual expenses run $7,200. Property B is in a newer suburb with lower taxes and an HOA that covers exterior maintenance — annual expenses run $9,600.
Net yield for Property A: ($16,800 − $7,200) / $180,000 × 100 = 5.3% Net yield for Property B: ($26,400 − $9,600) / $320,000 × 100 = 5.25%
After expenses, the gap nearly disappears. Priya also notes that Property B qualifies as a tax-shelter through accelerated depreciation, which further improves after-tax returns. She chooses Property B for its combination of net yield, tax advantage, and neighborhood trajectory.
Pros & Cons
- Simple and fast to calculate — useful for screening dozens of properties quickly
- Makes unlike properties directly comparable across markets and price points
- Net yield keeps you honest about real operating costs
- Helps set rent expectations before making an offer
- Useful benchmark when refinancing or deciding whether to sell
- Gross yield ignores all expenses and can badly overstate returns
- Does not capture appreciation, which may be the dominant return driver in some markets
- Vacancy assumptions are easy to game — optimistic vacancy inflates yield
- Ignores financing costs (mortgage interest) unless included in the net calculation
- A high yield sometimes signals higher risk — distressed areas, difficult tenants, deferred maintenance
Watch Out
Yield compression in hot markets. When prices rise faster than rents, yields fall. A property that yielded 9% five years ago may yield 5% today at current prices — not because it performs worse, but because the market has repriced it.
Expense manipulation. Sellers sometimes quote gross yield while presenting a rosy expense estimate. Always build your own expense model from actual tax bills, insurance quotes, and local management rates.
Ignoring vacancy. A property renting 10 months per year has an effective yield 17% lower than the advertised rate. Use 8–10% vacancy as a conservative default unless you have strong local data.
Ask an Investor
The Takeaway
Rental yield is the fastest way to judge whether a property earns its price in income. Use gross yield to screen quickly and eliminate obvious non-starters. Always convert to net yield before making any serious decision. A 6–8% gross yield in most U.S. markets is a reasonable starting benchmark — but context always matters more than any single number.