Rental yield is one of the quickest ways to compare properties: how much rent does a property produce relative to what it costs? There are two common versions — gross and net — and they can tell very different stories about the same property.
Gross rental yield
Gross yield uses the rent alone. No vacancy, no expenses, no financing. That simplicity is its strength: it can be calculated from a listing in a few seconds, which makes it handy for screening a long list of properties.
It’s also its weakness. Two properties with the same rent and price have the same gross yield even if one has double the property taxes or an HOA fee the other doesn’t.
Net rental yield
Net yield subtracts the cost of running the property before dividing by price. When it’s calculated with a full expense list, net yield is effectively the same as cap rate: net operating income divided by price.
Like cap rate, net yield excludes the mortgage. It describes the property, not the financing.
A worked example
A $275,000 rental renting for $2,100/month
Gross yield: $25,200 annual rent ÷ $275,000 = 9.16%
To get to net yield, subtract a year of costs:
| Annual line item | Amount |
|---|---|
| Gross rent | $25,200 |
| Vacancy allowance (5%) | −$1,260 |
| Property taxes | −$3,600 |
| Insurance | −$1,300 |
| Management (8% of collected rent) | −$1,915 |
| Maintenance (5%) | −$1,260 |
| CapEx reserve (5%) | −$1,260 |
| Net income | $14,605 |
Net yield: $14,605 ÷ $275,000 = 5.31%
Hypothetical numbers for illustration.
The gap between the two is 3.85% percentage points. Vacancy and expenses consume about 42% of the gross rent — a reminder that the rent check is not the return.
Why the gap matters
The difference between gross and net yield is driven entirely by costs, and costs vary far more between properties than people expect. Consider a second property at the same price with higher rent:
| Property A | Property B | |
|---|---|---|
| Price | $275,000 | $275,000 |
| Annual rent | $25,200 | $27,600 |
| Gross yield | 9.16% | 10.04% |
| Net yield | 5.31% | 3.24% |
Property B wins on gross yield. But it carries higher taxes and insurance, a 10% management fee, larger maintenance and CapEx allowances and a $1,800 annual HOA fee. After expenses, its net yield comes in below Property A’s. Gross yield alone would have ranked them the other way around.
This is the main reason to treat gross yield as a screening number, not a conclusion.
What both yields leave out
Neither version includes:
- Financing. Mortgage payments are excluded, so yield says nothing about monthly cash flow on a leveraged purchase. For that, see rental cash flow and cash-on-cash return.
- Purchase costs. Yield is usually calculated on price, not total cash invested. Adding closing costs and initial repairs to the denominator produces a slightly lower, more complete figure.
- Appreciation and principal paydown. Yield is an income measure only.
- Taxes on income. Both are pre-tax.
Rules of thumb built on gross yield
Several quick screening rules are really gross-yield thresholds in disguise. The well-known 1% rule, for example, compares monthly rent to price — 1% monthly works out to a 12% gross yield. Rules like this can speed up a first pass through listings, but they inherit all of gross yield’s blind spots about expenses.
When each version is useful
Gross yield earns its place early in the process. When dozens of listings need a first pass, it quickly filters properties whose rent is low relative to price. It’s also a common shorthand in market reports, where expense data for every property isn’t available.
Net yield is the better number once a property is being looked at seriously. It forces each cost to be named and estimated, and it lines up directly with cap rate, which is how many appraisers and commercial buyers think about value.
A practical workflow uses both: gross yield to narrow the list, net yield to compare the short list, and then financed metrics such as cash flow and cash-on-cash return to see how a specific loan changes the picture.
Getting the inputs right
Use market rent, not hoped-for rent. Comparable rentals nearby are a better source than a listing’s projected rent.
Use the full price. If a property needs work before it can be rented, some analysts add the repair budget to the price so yield reflects the full cost.
Be consistent. Comparing one property’s net yield (with CapEx) to another’s (without CapEx) isn’t an apples-to-apples comparison. The same expense list should apply to every property in the comparison.
Yield on total cost
One refinement worth knowing: instead of dividing by the purchase price alone, divide by the total cost of acquiring the property — price, closing costs and initial repairs. This “yield on cost” is slightly lower than yield on price, and it’s a fairer comparison when one property needs significant work before it can be rented and another doesn’t.
The takeaway
Gross yield is annual rent divided by price — fast, simple and blind to costs. Net yield subtracts vacancy and operating expenses first, which makes it a closer picture of what the property actually produces. The distance between the two is a direct measure of how expensive a property is to run, and it’s often where the real differences between properties show up.