How to Calculate Rental Yield: Gross and Net Yield Explained
Rental yield measures the annual return a property generates relative to its value. It is a quick way to compare properties across different price points and markets. There are two types: gross yield (simpler, less accurate) and net yield (more useful, accounts for expenses).
Gross rental yield
Gross Yield = (Annual Rent / Property Value) x 100
Example: A property worth $200K renting for $1,800/month ($21,600/year) has a gross yield of 10.8%. Gross yield is useful for quick screening but does not account for expenses, vacancy, or management costs.
Net rental yield
Net Yield = ((Annual Rent - Annual Expenses) / Property Value) x 100
Using the same property: $21,600 rent minus $8,640 expenses (vacancy, taxes, insurance, maintenance, management) = $12,960 NOI. Net yield = $12,960 / $200,000 = 6.5%. This is essentially the same as cap rate and gives a more realistic picture of your return.
Target yields by market type
| Market Type | Gross Yield Target | Net Yield Target |
|---|---|---|
| A-class metro (high appreciation) | 4-6% | 2-4% |
| B-class suburban | 7-10% | 4-7% |
| C-class cash flow markets | 10-14% | 7-10% |
Yield vs total return
Rental yield only measures cash return. Total return includes appreciation, mortgage paydown, and tax benefits. A property with 5% yield in a market appreciating at 5% annually has a 10% total return. Markets with lower yields often have higher appreciation, and vice versa.
For wholesalers marketing to rental buyers, presenting both yield and total return potential makes your deal package more compelling. See our rental income projection guide for detailed analysis methods.
Related guides
- How to Analyze a Rental Property
- Cap Rate Explained
- How to Calculate ROI on Rentals
- How to Project Rental Income
- Rental Cash Flow Analysis