Investing metrics
Rental yield
A property's annual rent as a percentage of its price or value — gross yield uses rent alone, net yield subtracts operating costs.
Glossary
Investing metrics
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Rental yield expresses a property’s rent as a percentage of what it costs. Gross rental yield divides annual rent by the property price: $24,000 of rent on a $400,000 property is a 6% gross yield. Net rental yield goes further, subtracting operating expenses from the rent before dividing, so it reflects what the property actually nets.
Yield is close kin to cap rate; the practical difference is that yield is often measured against the price you paid, while cap rate is usually taken against current value, and “gross” versus “net” changes the answer a lot. Whichever you use, be clear about which version you’re quoting so you’re comparing like with like.
Gross and net yield from one complete case
Assume a property price of $300,000, $30,000 of closing and initial improvement costs, annual scheduled rent of $36,000, $3,000 of vacancy and concessions, and $9,000 of recurring operating expenses. Gross yield on price is $36,000 ÷ $300,000 = 12.0%. Gross yield on total initial cost is $36,000 ÷ $330,000 = 10.9%. Net operating income is $24,000, so net yield is 8.0% on price or about 7.3% on total initial cost.
All four numbers can be arithmetically correct and still be incomparable if another property uses collected rent, current value, a different expense scope, or excludes acquisition work. Define gross or net numerator, price or cost denominator, period, vacancy and concession treatment, and operating-expense policy next to the result. Fannie Mae’s property-income bridge is useful for checking rent, vacancy, concessions, and bad debt inputs, but it does not prescribe a universal rental-yield denominator.
Test sensitivity before comparing properties
On the $330,000 total-cost denominator, net yield is about 7.3%. If scheduled rent falls 5% to $34,200 while the $3,000 loss allowance and $9,000 expenses remain, net income is $22,200 and yield is about 6.7%. If operating expenses instead rise by $3,000, net income is $21,000 and yield is about 6.4%. A combined change would be lower still. Show the dollar bridge because a percentage alone does not reveal the sensitive input.
What rental yield can and cannot decide
Yield can screen properties and expose how rent, expense, and denominator assumptions affect a simple unlevered return. Reconcile annual rent to the rent roll and income bridge, expenses to the operating statement, and price or total cost to closing and project records. For current-value yield, document the valuation date and source rather than substituting an optimistic estimate.
Rental yield does not show debt payments, timing of cash, taxes, depreciation, appreciation, sale costs, liquidity, condition risk, or total return. It cannot replace cash-on-cash analysis for a financed investment, a discounted cash-flow model for uneven future periods, or diligence on leases, title, condition, law, and financing. Use the same definition across candidates and carry the underlying dollar assumptions into the decision record.