Rental yield is one of the first metrics investors use to screen properties. It's quick to calculate, easy to compare, and gives you an immediate sense of whether a property is worth investigating further.

But there are two types of rental yield—gross and net—and confusing them can lead to expensive mistakes.

What is Rental Yield?

Rental yield measures the annual rental income as a percentage of the property's value. It tells you how much income a property generates relative to its price.

Think of it like the interest rate on a savings account: a 5% yield means the property generates 5% of its value in annual rent.

Gross Rental Yield

Gross yield is the simplest calculation—annual rent divided by property price, with no deductions.

Gross Rental Yield = (Annual Rental Income ÷ Property Value) × 100

Example:

• Property price: $400,000
• Monthly rent: $2,400
• Annual rent: $28,800

Gross Yield = $28,800 ÷ $400,000 × 100 = 7.2%

When to Use Gross Yield

Gross yield is useful for:

• Quick screening of multiple properties
• Comparing properties in the same market
• Initial feasibility checks
• Comparing to advertised yields (usually quoted gross)

It's fast but incomplete—it ignores all the costs of ownership.

Net Rental Yield

Net yield accounts for operating expenses, giving you a more realistic picture of actual returns.

Net Rental Yield = [(Annual Rent - Annual Expenses) ÷ Property Value] × 100

Or equivalently:

Net Rental Yield = (NOI ÷ Property Value) × 100

This is the same as cap rate—net yield and cap rate are identical calculations.

Example:

• Property price: $400,000
• Annual rent: $28,800
• Annual expenses: $9,600 (taxes, insurance, maintenance, management, vacancy)
• NOI: $19,200

Net Yield = $19,200 ÷ $400,000 × 100 = 4.8%

The net yield (4.8%) is significantly lower than gross yield (7.2%). That 2.4% gap represents the cost of actually owning the property.

The Yield vs. Growth Tradeoff

High-yield markets (8%+ gross):

• Strong current income
• Lower property values
• Less appreciation expected
• Examples: Midwest cities, secondary Southern markets

Low-yield markets (4-5% gross):

• Weaker current income
• Higher property values
• More appreciation expected
• Examples: Coastal cities, major metros

Your strategy determines which matters more:

• Cash flow investors: Prioritize high yields
• Appreciation investors: Accept low yields for growth
• Balanced investors: Look for moderate yields in growing markets

Key Takeaways

• Gross yield = Annual rent ÷ Property value (quick and simple)
• Net yield = NOI ÷ Property value (accounts for expenses, same as cap rate)
• The gap between gross and net is your expense ratio
• Higher yields usually mean higher risk and lower appreciation
• Always use net yield for serious analysis—gross yield is just for screening
• Compare yields within the same market and property type

Rental yield is your first filter when evaluating properties. Gross yield tells you if a deal is worth investigating; net yield tells you if it actually makes money. Master both to screen efficiently and analyze accurately.