- What is rental yield?
- Rental yield is the annual rental income from a property expressed as a percentage of its price. Gross yield = annual rent ÷ property price × 100. Net yield = (annual rent − annual operating expenses) ÷ property price × 100. It's the rental-property equivalent of a dividend yield on a stock: how much income the asset throws off relative to what it costs.
- What's the difference between gross and net rental yield?
- Gross yield ignores expenses — it's annual rent divided by price. Easy to compute, easy to advertise, useless for a buy decision. Net yield subtracts every operating cost (taxes, insurance, maintenance, HOA, vacancy assumption) and is the only yield that predicts whether the property pays for itself. A $300,000 property at $2,000/month has an 8% gross yield but a 5.7% net yield once you account for $6,900/yr in real expenses.
- What's a good rental yield?
- Depends on where the property is. In US urban premium markets (NYC, San Francisco, LA core), net yield of 3-5% is normal — investors accept low income because they expect appreciation. Suburban and secondary cities sit at 5-8% net — balanced income and growth. Rural and tertiary markets clear 8-12% net — high cash flow but flat prices and more vacancy risk. Outside the US, the same pattern holds: London prime at 2-4%, suburban UK at 5-7%, emerging markets often 10%+.
- How is rental yield different from cap rate?
- They measure the same thing in different vocabulary. Cap rate (US institutional convention) = NOI ÷ property value. Net rental yield (international / private-investor convention) = (annual rent − annual expenses) ÷ property price. Both exclude mortgage. Both express annual income as a percentage of value. The two numbers can match exactly on the same property; the term you use depends on whether you trained in the US (cap rate) or anywhere else (yield). Use whichever your market and your spreadsheet expect.
- Why doesn't the calculator include the mortgage?
- On purpose. Rental yield measures the property, not your specific financing deal. The same property has one yield but a different cash-on-cash return for every buyer (depending on down payment, loan terms, interest rate). Stripping out the mortgage lets you compare properties on level ground. To see your actual leveraged return after debt service, run a cash-on-cash calculation separately.
- What counts as an operating expense?
- Costs to run the property, debt-free: property taxes, building insurance, maintenance and repairs, capex reserve (set aside for big-ticket items like roof, HVAC), HOA or strata or service charge, property management fees, landlord-paid utilities, accounting, leasing costs, and a vacancy allowance. NOT included: mortgage principal and interest, depreciation, income taxes, capital improvements that add square footage, your personal labor.
- Why is my net yield negative?
- Total operating expenses plus vacancy exceed gross rent. The property loses money before any mortgage payment — it can't service a loan, and the owner has to feed it cash to hold it. Check whether the maintenance and vacancy assumptions are realistic; if they're correct, the rent is too low or the expenses too high for the property to work as a rental at the current price.
- Should I use the purchase price or current market value?
- Depends on the question. Purchase price tells you what return you'd lock in by buying today — the right denominator for an acquisition decision. Current market value tells you what yield the property is actually earning right now, regardless of what you paid years ago — the right denominator for deciding whether to sell or refinance. Yields computed against price always look better than yields computed against current value for a property that's appreciated.
- Does high rental yield mean a property is a better investment?
- Not automatically. High yield usually comes paired with low or flat appreciation — Cleveland, Memphis, and Birmingham yield more than San Francisco precisely because nobody expects San Francisco-style price growth there. Total return is yield plus appreciation; the highest-yield property in a stagnant market can underperform a low-yield property in a growing one. Yield is one input to the decision, not the verdict.
- What vacancy rate should I assume?
- 5% is the standard residential default — about 2.6 weeks of empty time per year, which covers normal turnover. Use 8-10% for high-turnover markets (college towns, transient cities), 10-15% for short-term rental / Airbnb properties, 15-20% for seasonal markets, and 20%+ for vacation rentals out of season. Set the rate to match what your local market actually does — being optimistic on vacancy is the most common way investor pro formas overstate net yield.
