Rental yield is the most commonly quoted return metric for investment property — and the most commonly misunderstood. Landlords advertise gross yield. Investors should analyze net yield. The gap between the two can be 2–3 percentage points, which makes the difference between a property that cash flows and one that quietly loses money every month.

This guide explains both calculations, when to use each, and how to interpret what the numbers actually mean for your investment.

Gross Rental Yield

Gross rental yield is the simplest version of the calculation:

Gross Yield = (Annual Rent / Property Value) × 100

A property worth $500,000 that rents for $2,500/month has a gross yield of:

($2,500 × 12) / $500,000 × 100 = 6.0%

Gross yield is useful for a quick scan across many properties. It only requires two numbers — price and rent — and gives you an apples-to-apples comparison across different property sizes and markets.

The problem: gross yield ignores all costs. Two properties with identical gross yields can have very different real returns depending on property taxes, insurance, maintenance requirements, and vacancy rates.

Net Rental Yield

Net rental yield subtracts all operating expenses before dividing:

Net Yield = ((Annual Rent − Annual Expenses) / Property Value) × 100

Using the same property, if annual expenses total $9,000 (property taxes, insurance, maintenance, management):

(($30,000 − $9,000) / $500,000) × 100 = 4.2%

The gap from 6.0% gross to 4.2% net is typical. In some markets and property types it is even wider. This is the number that matters for evaluating whether a property is worth buying.

What Counts as an Operating Expense?

Net yield includes all recurring costs of running the property:

  • Property taxes
  • Landlord insurance
  • Property management fees (typically 8–12% of gross rent)
  • Routine maintenance and repairs
  • Vacancy allowance (5–8% of gross rent is standard)
  • HOA or body corporate fees
  • Any council rates or utility costs you cover as landlord

Net yield does not include mortgage payments. Yield measures the property's return independent of how it is financed — the same property has the same yield whether purchased with cash or with a 90% loan. Use the Rental Yield Calculator to model both scenarios quickly.

What Is a Good Rental Yield?

Benchmarks vary significantly by market:

  • 3–4% net yield: Common in premium inner-city markets. Investors accept lower yields betting on capital growth.
  • 5–7% net yield: Generally considered solid in most residential markets. Property roughly covers its costs.
  • 8%+ net yield: Typical in regional markets or properties requiring active management. Higher yield, potentially higher risk.

Your target yield should be benchmarked against your financing cost. If your mortgage rate is 6.5%, a net yield of 4% means the property costs you money every month. You need net yield above your financing cost to generate positive cash flow.

Yield vs Cap Rate

Cap rate is similar to net yield but is calculated from Net Operating Income (NOI), which is typically defined more strictly in commercial real estate. For residential property, net yield and cap rate are often used interchangeably. Use the Cap Rate Calculator to compare properties using the cap rate methodology preferred by institutional investors.