About this tool
Rental yield, explained
Work out a rental property's net yield, gross yield, monthly cash flow after the mortgage and cash-on-cash return. Enter the price, rent and running costs, then vacancy, management, purchase costs and financing.
How to use it
- 1Set the Purchase price, Monthly rent and Yearly costs (tax, insurance, upkeep), or pick a preset: City flat, Family house, Student let or Cash purchase.
- 2Under Operating, set the Vacancy, the Management fee and the Purchase costs.
- 3Under Financing, set the Down payment, Mortgage rate and Mortgage term.
- 4Read the Net yield, then the cash flow and cash-on-cash return, where the rent goes and the year one table.
How it works
How the yields and cash flow are calculated
A year of rent is the monthly rent times 12. The vacancy rate removes the share of the year the property sits empty, and the management fee is a percentage of the rent actually collected. Taking off the yearly costs you enter leaves the net operating income.
Net yield is that income divided by the full cost of buying: the price plus the purchase costs, a percentage of the price for taxes and fees. Gross yield, the figure often quoted in listings, is a year of rent divided by the price alone, so it always looks higher.
The loan is the price minus your down payment, repaid monthly over the term. Cash flow is the net operating income minus a year of mortgage payments, and cash-on-cash return divides it by the cash needed to buy: the down payment plus the purchase costs.
With the starting figures, a $320,000 property let at $1,800 a month with $4,500 of yearly costs, 5% vacancy, an 8% management fee, 3% purchase costs and 25% down at 6.5% over 25 years, the net yield is 4.4% against 6.8% gross. The rent covers about 74% of the mortgage, so the property is $422 a month short and needs $89,600 of cash to buy.
The mortgage payment counts in full against cash flow, including the principal part that builds your equity. Rent increases, price growth and income tax are not included.
Net operating income = Rent × 12 × (1 − Vacancy) × (1 − Management fee) − Yearly costs. Net yield = Net operating income / (Price + Purchase costs). Cash-on-cash = (Net operating income − Mortgage payments) / (Down payment + Purchase costs)
When to use it
Ways people use it
Comparing listings
Run two properties as scenario A and B with their real costs, and compare them on net yield and cash flow rather than asking price.
Checking an agent's yield figure
Enter the advertised rent and your own estimate of costs, and see how far the net yield sits below the gross figure in the listing.
Testing a financing plan
Move the down payment and the rate to find the point where the property pays for itself, then Download CSV for the year one table.
FAQ
Questions people ask
How do you calculate rental yield?
Gross yield is the yearly rent divided by the property price, times 100. Net yield subtracts vacancy, management and running costs from the rent first, and divides by the price plus purchase costs. This calculator gives both.
What is the difference between gross and net rental yield?
Gross yield uses rent alone. Net yield deducts costs such as maintenance, insurance, property tax, management fees and empty months. Net yield is lower and closer to what the investor actually earns.
What costs should I include?
Put property tax, insurance, maintenance, repairs and service charges in the yearly costs. Empty months, management fees and purchase taxes have their own fields, so do not count them twice.
What is a good rental yield?
It depends on the market, the property and the risk. Higher yields are often found where prices are low relative to rents, sometimes with weaker price growth, so compare within the same area and type.
Does rental yield include mortgage costs?
No. Yield measures the property's return on its cost, as if bought outright. The mortgage shows up in the cash flow and the cash-on-cash return, which this calculator also gives.