Rental Yield

· 2 min read
Rental yield is the annual return a property generates from rent alone, expressed as a percentage of the property’s value — and it’s the fastest…

Rental yield is the annual return a property generates from rent alone, expressed as a percentage of the property’s value — and it’s the fastest way to compare investment properties across different price ranges.

There are two versions: gross yield and net yield. Gross yield is the quick calculation you can do in your head while scrolling listings. Net yield accounts for expenses and tells you what you’re actually earning.

Gross Rental Yield

Take annual rent, divide by property value, multiply by 100. Done.

A $250,000 property renting for $1,800/month generates $21,600/year in rent. Gross yield: $21,600 / $250,000 = 8.64%. That’s solid. Compare it to a $400,000 property renting for $2,200/month ($26,400/year) — that’s only 6.6% gross yield. The cheaper property is the better deal by this measure.

Net Rental Yield

This is the number that actually matters. Subtract all annual operating expenses from rental income before dividing by property value.

Using that $250,000 property:

  • Annual rent: $21,600
  • Vacancy (7%): -$1,512
  • Property taxes: -$3,000
  • Insurance: -$1,200
  • Maintenance: -$2,160
  • Management (8%): -$1,728
  • Net income: $12,000

Net yield: $12,000 / $250,000 = 4.8%. That’s a far cry from the 8.64% gross yield. This gap is exactly why gross yield alone can be misleading.

What’s a Good Rental Yield?

Gross yields of 7-10% are generally considered good for residential rentals. Net yields of 4-6% are respectable. Anything above 10% gross in a decent market deserves close scrutiny — either it’s a genuine deal or there are hidden problems dragging rent-to-price ratios out of whack.

High-cost cities like San Francisco, New York, and Seattle typically show gross yields of 3-5%. Midwest markets like Cleveland, Memphis, and Indianapolis often hit 8-12%. The tradeoff is usually appreciation — low-yield markets tend to appreciate faster.

Yield vs. Total Return

Rental yield only captures the income side. Total return includes appreciation, principal paydown on the mortgage, and tax benefits. A property yielding 5% might deliver 12-15% total returns when you factor in 3% appreciation and the mortgage being paid down by tenants.

Don’t chase yield alone. A 12% yield property in a declining neighborhood might lose 5% in value annually, wiping out your income gains and then some.

Model different scenarios with our mortgage calculator and read the full buying guide before purchasing rental property. Find more terms in the glossary.