Rental yield is a percentage that expresses how much annual income a property generates relative to its value or cost. There are two versions: gross rental yield, which is calculated before expenses, and net rental yield, which accounts for all costs associated with owning and managing the property. Net rental yield is the more accurate measure of a property’s true profitability. Both are calculated by dividing annual rental income by the property value (or property value plus expenses for net), then multiplying by 100.
Rental yield is one of the most fundamental metrics in property investment, and one of the most commonly miscalculated. Getting it right from the outset gives you a clear, comparable view of a property’s income potential and helps you assess whether it fits within your investment goals and budget.
What Is Rental Yield?
Rental yield is a percentage that expresses how profitable an investment property is or is likely to be. It is based on annual rental income, giving you a long-term view of the feasibility of a property investment relative to its cost.
Because it is expressed as a percentage, rental yield allows you to compare properties of different sizes, prices, and locations on a consistent basis. A property with a higher rental yield generates more income relative to its cost than one with a lower yield.
Gross Rental Yield vs Net Rental Yield
There are two versions of rental yield, and understanding the difference between them is essential to accurately evaluating any investment property.
Gross Rental Yield
Gross rental yield is the simpler of the two calculations. It measures the annual rental income as a percentage of the property’s purchase price, without accounting for any expenses. It gives you a quick, high-level comparison between properties, but it does not reflect the true cost of ownership.
Worked example:
Weekly rent: $400
Annual rental income: $400 x 52 = $20,800
Purchase price: $350,000
Gross Rental Yield = (20,800 / 350,000) x 100 = 5.94%
Net Rental Yield
Net rental yield is the more accurate and useful measure of a property’s actual profitability. It takes into account all expenses associated with owning and managing the property, including property management fees, maintenance costs, property taxes, insurance, and other ongoing costs. This is the figure that reflects what you actually earn from the investment after costs.
Worked example:
Weekly rent: $400
Annual rental income: $400 x 52 = $20,800
Purchase price: $350,000
Annual expenses: $3,000
Net Rental Yield = (20,800 / (350,000 + 3,000)) x 100 = 5.89%
Which Yield Metric Should You Use?
Gross yield is useful for quick comparisons across a large number of properties. When you’re screening a shortlist, it gives you an immediate sense of relative income potential without requiring detailed cost data for each property.
Net yield is the figure you should rely on when making an actual investment decision. It accounts for the real cost of ownership and gives you a much more accurate picture of what the property will deliver in practice. Investors who rely solely on gross yield often find that their actual returns fall short of projections once ongoing expenses are factored in.
As a general rule: use gross yield to compare, and net yield to decide.
What Is a Good Rental Yield?
What constitutes a strong rental yield varies by market, property type, and investment strategy. In most markets, a net rental yield of 4% to 6% is considered solid for a residential investment property. Yields above 6% may indicate strong income potential, though they sometimes come with trade-offs in capital growth or location quality. Yields below 4% may be acceptable in high-growth markets where capital appreciation compensates for lower income returns.
Context matters as much as the number itself. A yield of 5% in a high-demand urban area with strong growth fundamentals is a very different proposition to a 5% yield in a market with high vacancy rates and limited growth prospects.
Calculate Rental Yield for Multiple Properties at Once
If you are evaluating multiple properties simultaneously, calculating yield manually for each one is time-consuming. PropHero has built a free cashflow calculator that automates this process, allowing you to assess the rental yield and overall feasibility of multiple properties side by side.
Final Thoughts
Rental yield is one of the first numbers any property investor should know how to calculate accurately. Gross yield gives you a fast comparison tool. Net yield gives you the truth. Using both correctly puts you in a much stronger position when evaluating whether a property is genuinely worth pursuing.
At PropHero, our investment experts assess rental yield as part of a comprehensive, data-driven evaluation of every property we recommend. If you want a clear analysis of a specific property or market, book a free session with our team.