What is Yield in Real Estate?
Yield in real estate investing refers to the income return on an investment, expressed as a percentage of the investment's cost or market value. It measures how much cash income a property generates relative to what you paid for it.
Types of real estate yield
Gross rental yield: Annual rent divided by property value. A $200,000 property renting for $1,800/month ($21,600/year) has a gross yield of 10.8%.
Net rental yield: Annual rent minus operating expenses, divided by property value. If expenses are $8,000/year, net yield is ($21,600 - $8,000) / $200,000 = 6.8%.
Cash-on-cash yield: Cash income relative to cash invested (not total property value). If you put $50,000 down and net $8,000/year after all expenses including mortgage, your cash-on-cash yield is 16%. Leverage amplifies yield on invested capital.
Yield vs total return
Yield only measures income. Total return includes both income (rent) and capital appreciation. A property might have a modest 5% yield but appreciate 4% annually for 9% total return. Investors choose between high-yield/low-appreciation markets (Midwest, Southeast) and low-yield/high-appreciation markets (West Coast) based on goals.
Yield in wholesaling
Understanding yield helps you speak your buyer's language. A rental buyer is comparing the yield to other investments. If your deal offers 6% net yield in a market where similar properties yield 8%, the buyer will not bite. Presenting accurate yield calculations in your marketing package shows buyers you understand their analysis framework.