How to calculate rental property yield
A practical guide to gross yield, net yield, rental costs and the difference between property yield and return on invested equity.
Rental yield is the first filter for deciding whether a property deserves deeper analysis. Annual rent alone is not enough. Investors should separate gross yield, net yield and the return on their own equity.
Gross yield is only a quick starting point
Gross yield is annual rent divided by the purchase price. If an apartment costs EUR 180,000 and the annual rent is EUR 10,800, the gross yield is 6%.
The number is useful for fast comparison, but it ignores fees, repairs, insurance, tax, vacancy and future maintenance.
Net yield shows the real economics
Net yield subtracts operating costs and reserves from annual rent. Typical inputs include owner-paid utilities, building management, repair fund payments, insurance, property tax and vacancy allowance.
If EUR 7,800 remains after costs, the net yield on a EUR 180,000 property is 4.33%. That is a much better metric for comparing locations.
Compare yield with risk
Higher yield often comes with higher risk: weaker liquidity, older buildings, more repairs or more demanding tenant management. Yield should be reviewed together with cash flow, LTV and technical condition.
- compare net yield, not only gross yield,
- include reserves for repairs and vacancy,
- track portfolio yield over time, not only at purchase,
- separate property yield from return on your own equity when debt is used.
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