Rental yield measures how much income a property generates each year as a percentage of its value. It's one of the fastest ways to screen a rental property before digging into a full cash flow analysis — and unlike cap rate, yield calculations come in two flavors that get confused constantly: gross yield and net yield.
Knowing which one you're looking at (and which one a listing agent is quoting you) can be the difference between a good deal and a disappointing one.
Gross Rental Yield
Gross yield is the simplest version — annual rent divided by purchase price, with no expenses subtracted. It's fast to calculate and useful for quick comparisons across many listings.
Net Rental Yield
Net yield subtracts operating expenses — property taxes, insurance, management fees, maintenance, and vacancy — before dividing by price. It's a far more honest number because two properties with identical gross yields can have very different profitability once real costs are factored in.
What Is a Good Rental Yield?
- Gross yield 5% or below: Common in high-cost, high-appreciation markets. The bet is on price growth, not income.
- Gross yield 6–8%: A healthy middle ground found in many secondary markets.
- Gross yield 9%+: Often found in lower-cost markets, but can also signal higher vacancy risk, older housing stock, or a rougher tenant pool. Investigate before assuming it's a bargain.
Key insight: Gross yield is a screening tool, not a decision-making tool. Never commit capital based on gross yield alone — always run the net numbers, and ideally a full cash flow projection including financing, before making an offer.
Yield vs. Cap Rate vs. Cash-on-Cash Return
These three metrics are related but distinct. Net yield and cap rate are calculated the same way (NOI ÷ value) and are often used interchangeably. Cash-on-cash return goes a step further and factors in your financing — it measures return on the actual cash you invested, not the full property value. Use gross yield to screen listings quickly, net yield/cap rate to compare deals on an apples-to-apples basis, and cash-on-cash return to understand your personal leveraged return.