The formula
Gross yield = annual rent ÷ price · net = (rent − costs) ÷ total investment
Where it comes from
Gross yield divides the annual rent by the purchase price and is easy to work out, which is exactly why listings use it. Net yield subtracts the costs that really exist — property tax, service charges, insurance, maintenance, void periods — and divides by the total investment, which includes the taxes and costs of buying. That difference between the two denominators is half the gap between the two figures.
How to work it out by hand
- Multiply the monthly rent by twelve
- Divide by the purchase price: that is the gross yield
- Subtract the annual ownership costs
- Divide by the price plus buying costs: that is the net yield
What is worth knowing
One piece that changes the figure a great deal is the void period. A single empty month a year takes more than eight percentage points off the income, so it belongs in the calculation. Rental taxation is not included either, and it depends on the country and sometimes carries significant relief. And yield is not total return: it leaves out appreciation, which in some markets matters more than the rent.