Rental yield explained: gross, net, and the costs people forget
How gross and net rental yield are calculated, why the two numbers diverge, and which recurring costs to include before comparing properties.
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Gross yield: the headline number
Gross rental yield is annual rent divided by the purchase price, expressed as a percentage:
gross yield = (monthly rent × 12) ÷ purchase price × 100
A property bought for 200,000 that rents for 900 per month has a gross yield of (900 × 12) ÷ 200,000 × 100 = 5.4%.
Gross yield is useful for one thing only: comparing listings quickly. It ignores every cost of ownership.
Net yield: the number you actually live with
Net yield subtracts recurring costs from rent before dividing:
net yield = (annual rent − annual costs) ÷ total purchase cost × 100
Costs commonly forgotten:
- property tax and building/association charges
- insurance
- management or letting fees
- maintenance and periodic renovation reserve
- vacancy — few units are let 12 months a year, every year
- income tax on rent, which depends on your residence and structure
Using the same example with 3,000 of annual costs and one vacant month: (9,900 − 3,000) ÷ 200,000 × 100 = 3.45%. The same property, two very different stories.
Total purchase cost, not price
Divide by what you actually paid: price plus transfer taxes, notary and registration fees, agency fees and any immediate works. Yields calculated on price alone are flattering and not comparable.
What yield does not tell you
Yield says nothing about liquidity, currency risk, regulation of short-term lets, tenant demand, or capital growth. Two properties with identical yields can carry very different risk.
Important
The figures above are illustrative arithmetic, not investment advice. Novalify does not provide valuation, tax or investment advice; confirm assumptions with a licensed professional in the relevant jurisdiction.