Glossary
Rental yield
Rental income compared with the purchase price and ownership costs.
What it means
Rental yield estimates how much rental income a property can produce relative to its price.
Gross yield compares annual rent with the purchase price. Net yield also subtracts taxes, insurance, HOA fees, repairs, vacancy, and management.
For real estate decisions, net yield is usually more useful than headline rent because ownership costs vary sharply by city, building, and property type.
To calculate gross yield: divide the annual rental income (monthly rent × 12) by the property's purchase price or current market value, then multiply by 100 to get a percentage. For example, $12,000 annual rent on a $200,000 property yields a 6% gross yield (12,000 / 200,000 = 0.06).
To calculate net yield: subtract predictable annual expenses (property taxes, insurance, HOA, maintenance, average vacancy allowance, professional management fees, and routine repairs) from annual rental income, then divide the resulting net income by the purchase price or market value and multiply by 100. Net yield reflects the cash the investor can expect to retain before debt service and thus is a better input for comparing opportunities.
Healthy yield ranges depend on market type and investor goals. In gateway or high-demand coastal cities, gross yields of 3–5% are common and may still be attractive because of strong appreciation and low vacancy; in secondary or value markets, gross yields of 6–10% (or higher) are typical to compensate for lower price growth. Investors should benchmark yields against local norms for the property class and consider expected appreciation and risk.
A very high headline yield can signal higher risk rather than a guaranteed bargain. Extremely high yields often accompany distressed properties, low-demand locations, structural issues, poor tenants, or non-market rents; they may also reflect necessary capital expenditures, higher vacancy, or legal/regulatory constraints. Always reconcile unusually high yields with inspection, local market analysis, and a conservative allowance for hidden costs.
Investors use yield alongside cap rate and cash-on-cash return to form a fuller picture. Cap rate is similar to net yield but typically uses net operating income (NOI) and excludes financing; cash-on-cash return measures actual cash returns to an investor after mortgage payments. Comparing these metrics helps separate operating performance (NOI/cap rate), asset pricing (yield), and investor-specific financing effects (cash-on-cash), enabling better apples-to-apples comparisons between deals.