Gross versus net rental yield
Gross yield = annual rent ÷ price. Net yield = (annual rent − expenses) ÷ price, which U.S. investors call cap rate. Gross yield always runs higher because nothing is subtracted; net yield is the number that survives contact with taxes, insurance, vacancy, and HOA dues.
UK and European landlord sites quote gross yield freely, so a listing's headline number is often the flattering one. Always ask which one a quote means: a 9% gross that is 4.5% net is a different investment than it sounds, which is why a "7% yield" and a "7% cap rate" in the same conversation are the same number. Convention decides which one a listing advertises.
Gross yield vs net yield vs cap rate vs cash-on-cash
Four numbers describe the same property's return, and each answers a different question. Gross yield and net yield judge the building before financing, cap rate is net yield under its appraisal name, and cash-on-cash judges your money after the loan. Read them as four lenses, not four estimates.
These four metrics differ in what they count and whether they include financing. Read the fourth column to see which one answers your question.
| Metric | What it counts | Formula | Includes financing? | When to use |
|---|---|---|---|---|
| Gross Yield | Rent before any cost, as a share of price | annual rent ÷ price | No | Screening listings fast, and decoding marketing quotes |
| Net Yield | Income after operating expenses, as a share of price | (annual rent − operating expenses) ÷ price | No | Reading what a specific property earns after it operates |
| Cap Rate | The same number under its appraisal name | NOI ÷ price, identical to net yield | No | Comparing buildings, and matching the term lenders and appraisers use |
| Cash-on-Cash | Your return on the cash you actually invested | annual cash flow ÷ cash invested | Yes | Judging what your down payment earns after debt service |
Gross yield, net yield, and cap rate all divide by price; only cash-on-cash includes the loan.
Worked example
A $200,000 condo renting at $1,600 a month grosses $19,200 a year: gross yield is $19,200 ÷ $200,000 = 9.6%. Taxes, HOA dues, and insurance of $6,600 leave $12,600, so net yield is 6.3%; the 3.3-point gap is what ownership actually costs.
HOA-heavy buildings are the classic case of a gorgeous gross yield hiding a pedestrian net, because dues and insurance land in the expense column gross yield never opens. The full expense side behind that $6,600 lives in the NOI calculator.
Worked example 2: the same property, three return lenses
One property produces three different returns depending on which lens you use. Take a $400,000 duplex collecting $36,000 a year with $13,000 of expenses, 20% down at 6.5%. It reads as 9.0% gross, 5.8% net, and negative cash-on-cash. Same building, three verdicts.
Gross yield is the headline: $36,000 ÷ $400,000 = 9.0%. Nothing is subtracted, so it is the number a listing advertises. Net yield subtracts the $13,000 of taxes, insurance, vacancy, and maintenance first. NOI is $23,000, so net yield is $23,000 ÷ $400,000 = 5.8%. That is a 3.2-point gap, and the gap is the entire cost of owning the building.
Cash-on-cash adds the loan. Twenty percent down on $400,000 means $80,000 invested and a $320,000 loan. At 6.5% over 30 years the payment is about $2,023 a month, or $24,271 a year. Against $23,000 of NOI, the property loses roughly $1,271 a year, so cash-on-cash is negative 1.6%. The building yields 9.0% on paper, 5.8% after expenses, and less than nothing after the mortgage.
The three numbers are not competing estimates of one thing, they are answers to different questions. Gross yield asks whether rent is large relative to price. Net yield asks whether the building earns anything after it operates. Cash-on-cash asks whether your down payment earns anything after the bank is paid. Here the first says yes, the second says modestly, and the third says no, the honest picture of a 5.8% net yield financed at 6.5%. The loan constant decides that last one: this loan costs 7.6% of the borrowed amount each year, so any net yield under 7.6% produces negative leverage. To break even, the deal needs a price near $379,000 or about $105 more rent a month.
Case study: comparing yields across three US markets
Yield is a market trait before it is a property trait. The same $300,000 buys a cash-flowing duplex in Cleveland, a barely-covering house in Phoenix, and nothing rentable in San Francisco. The rents and expense ratios below are illustrative, not current market data, but the arithmetic is what carries over.
Cleveland. A $300,000 duplex rents for $3,300 a month, $39,600 a year, a 13.2% gross yield. Assume expenses take 45%, $17,820, so NOI is $21,780 and net yield is 7.3%. Twenty percent down leaves $60,000 in the deal and a $240,000 loan at 6.5%, about $18,204 a year. Cash flow is positive $3,576, roughly $298 a month and a 6.0% cash-on-cash return.
Phoenix. The same $300,000 buys a similar house renting for $2,000 a month, $24,000 a year, an 8.0% gross yield. Assume lighter expenses at 40%, $9,600, so NOI is $14,400 and net yield is 4.8%. With the same $60,000 down and $240,000 loan, the $18,204 of debt service exceeds the NOI by $3,804. Cash flow is negative $317 a month, a negative 6.3% cash-on-cash return.
San Francisco. Here the comparison breaks: $300,000 does not buy a comparable rental, so the honest entry point is higher. A $1,200,000 condo renting for $4,500 a month grosses $54,000, a 4.5% gross yield, and 40% expenses leave $32,400 of NOI, a 2.7% net yield. Twenty percent down means $240,000 invested and $960,000 borrowed. The $72,814 of debt service produces a negative $40,414 a year, about negative $3,368 a month and negative 16.8% cash-on-cash. The coast pays in appreciation instead of income, and this is what that sentence means in dollars.
Nothing about those three buildings differs as much as the markets do. Yield is the price of income, and income is scarce where prices are high. Read a yield as a statement about the market first, then about the deal.
Reverse: what rent do I need to hit a target yield?
Flip the yield formula and the question changes from what a property earns to what rent it needs. Required monthly rent is the target yield times the price, divided by twelve. A $250,000 property at a 7% target needs $1,458 a month; the same math scales to any price and any target.
Three prices, three targets. A $250,000 property at 7% needs $1,458 a month. A $400,000 property at 6% needs $2,000. A $600,000 property at 5% needs $2,500. Read the pattern backward and it says something: the same rent supports a higher price only if you accept a lower yield, which is the trade between a cash-flow market and an appreciation market compressed into one division.
The gap is the useful part. If that $250,000 property actually rents for $1,250, it falls $208 short of the 7% target, and its real gross yield is 6.0% ($15,000 ÷ $250,000). That $208 is concrete: it is the rent increase to negotiate at renewal, the rent a renovation has to produce, or the reason to walk. Run it on a $600,000 property with a $2,500 target and $2,100 of actual rent and the gap is $400, a real gross yield of 4.2%, and a number no single lease renewal closes.
Small gaps and large gaps call for different decisions. A $200 gap can be closed with a value-add renovation or one aggressive renewal at a proven market rent, so the deal is worth underwriting. A $400 gap on a $600,000 property is usually a statement that the price already assumes growth, and the rent will not close it this year. The size of the gap tells you which of those two deals you are looking at.
The calculator runs this arithmetic live. Enter a price and rent and the yield figures update as you type, and the 1% rule card shows whether the same rent clears its own line, reading "Clears 1%" or "Below 1%". To work backward, multiply the asking price by your target yield and divide by twelve. Compare that number to the rent in the listing, and you have the gap before you spend an hour underwriting.
What is a good rental yield?
There is no single good yield, only a yield good relative to something else. Compare your net yield against local comps for the same property type, and against what safe money pays the same year. The spread over the 10-year Treasury is the market's price for illiquidity, management, and vacancy risk.
The bands themselves live in the FAQ below, and they describe net yield: under 4% is appreciation-only territory, and a gross quote always reads higher because nothing has been subtracted. As a floor rather than a comparison, the 1% rule states the same rent-to-price relationship as a pass/fail line, monthly rent at 1% of price, a screen for whether the income is even in range. Rules of thumb survive because they match how lenders and appraisers bracket risk, not because any threshold is a law.
The number yield leaves out
Yield ignores financing (a cash deal and a levered one show the same net yield), capital costs (a $40k roof is a real return that never appears), and appreciation. If you use yield to pick markets, pair it with three-year price trends and rent growth, or you will systematically buy into declining neighborhoods, because they always look the highest-yielding.
Yield vs appreciation: the two halves of total return
Total return has two halves: the income a property produces now, and the price growth it collects later. Yield is the first half and it is contractual. Appreciation is the second half and it is a forecast. Judging a rental on either one alone is judging half a deal.
Total return runs roughly net yield plus annual appreciation, before principal paydown and taxes. Apply that to the market examples. Cleveland's 7.3% net yield plus 1% price growth is about 8.3%. A coastal 2.7% net yield plus 6% growth is about 8.7%. The second deal throws off far less income and still lands in almost the same place, which is the entire argument for buying low-yield markets. Set the growth assumption to zero and the Cleveland deal still pays, while the coastal one pays nothing.
The two halves are not equally reliable. Rent is set by leases you can read; appreciation is a forecast about what other buyers will pay. A 7.3% yield shows up in cash this year whether or not the market cooperates, while a 6% growth assumption delivers nothing if prices sit flat for three years. That is why a low-yield case needs a longer hold and a specific reason to believe the growth story, and why a rate of price growth someone quoted you is an assumption, not a number you own.
There is a third contributor the two-number version misses: principal paydown, which converts each mortgage payment into equity. A coastal deal with negative cash flow can still build total return through paydown and growth, and a cash-flow deal that never appreciates still returns its yield. Count all three contributors, then decide which one you are actually buying.
Yield spread: benchmarking like an institution
Yield spread = your net yield − the 10-year Treasury yield, quoted in basis points. A 6% net cap when the 10-year pays 4% carries a 200-point spread, the compensation you collect for illiquidity, management, vacancy risk, and tenants. Safe money sets the baseline; your yield is only good relative to it.
Run the comparison on one date: a 6% cap when Treasuries yield 1% pays five points for the work, while the same 6% against a 5% Treasury pays one, and the property has to justify itself on cash flow rather than on the spread. The basis points are payment for the job-plus-risk load (illiquidity, management, vacancy risk, tenants), so quote the spread, not the yield alone. And confirm which yield you are spreading: gross yield is 1 ÷ GRM, and the conversion math lives in the GRM calculator, because a gross-only figure flatters the spread by every expense it has not subtracted yet.
Yield differs by unit count and structure
A fourplex usually yields more per dollar than a single-family rental because it splits one roof, one lot, and one management bill across four rents. Condos usually yield less than houses because HOA dues and insurance sit in the expense column. Structure moves net yield on the cost side.
The discount runs both ways: a fourplex often trades at a lower price per unit, and room-by-room renting changes the numerator rather than the structure, more gross rent against the same price, while carrying the cost of density in both directions. When comparing deals across structures, add the per-unit line: this calculator shows NOI per unit once you enter unit count. Read the ranking as a ranking of income, not of your return: yield excludes capital cost and leverage, while cash-on-cash return includes both.
Improving the yield of what you already own
Improve yield two ways: raise annual rent, or cut the expenses subtracted from it. On the rent side, resetting to true market is the single highest-leverage move, then add income floors: laundry, pets, parking, storage. On the cost side, re-shop insurance, appeal property-tax assessments, shift utilities to tenant-paid via RUBS where legal, and self-manage up to your tolerance.
Three details sit underneath those levers. Rent-ready basements count where local rules allow them, and the rent reset leads because it needs no capital, only a lease renewal at a verified market rent. Property-tax assessments are worth appealing because a successful reduction persists year after year. And a management fee is a percentage of rent, so it costs that percentage of the gross yield: 10% of rent is roughly a point against a 10% gross yield. On the property side, refinancing when spreads allow pulls capital out at a lower debt cost, which lifts cash-on-cash rather than net yield, while ADUs and lot splits change the numerator permanently. Model each one in the inputs before spending on it. That is exactly what this page's live recalculation is for.
The denominator problem: price vs all-in cost
Both yield formulas divide by price, but the honest denominator is everything you actually spend: purchase price plus closing costs, loan fees, and immediate rehab. Using the listed price overstates yield by the share of those costs relative to the deal.
The arithmetic, stated as a formula: all-in yield = net income ÷ (price + closing costs + rehab). A $200,000 condo collecting $12,600 net yields 6.3% on price; add $6,000 of closing costs and a $9,000 kitchen and the denominator becomes $215,000, and the yield drops to 5.9%. The same numerator, a different deal. Closing costs and rehab are one-time, so the gap narrows as you hold, but the yield you actually earn in year one is the one computed on the all-in basis. Whichever version you use, label it: comparing a price-basis yield against an all-in yield is comparing two different denominators.
The identical-twin trap: same yield, different deals
Two properties can quote the same yield and be worth different money. Gross yield is rent ÷ price, two numbers that contain no expenses, so identical gross yields can hide different expense loads, different rent durability, and different price per unit. Identical ratios, different income.
The arithmetic: two $250,000 buildings each collecting $2,000 a month, $24,000 a year. Both post a 9.6% gross yield, because gross yield divides those two numbers. Load expenses differently and the tie breaks: Building A carries $7,000 of taxes, insurance, and maintenance and nets $17,000, a 6.8% net yield; Building B carries $13,000, including an HOA-style service charge, and nets $11,000, a 4.4% net yield. Same price, same rent, same gross yield, 2.4 points apart. The condo example above is this rule in one building: the more rent that leaves through expenses, the further two gross-identical yields drift. Gross yield screens; net yield decides; your financing is a third question.
Three yield mistakes that mislead investors
Three mistakes turn a yield into a wrong decision: comparing gross yields across markets, treating a listing's gross yield as if it were net, and chasing the highest number on the page without pricing tenant risk. Each one has an arithmetic cost.
Comparing gross yields across markets. A Cleveland duplex at 13.2% gross and a Phoenix house at 8.0% gross look like different leagues. Load each market's own cost structure on top and the ranking changes: Cleveland nets 7.3% at a 45% expense load, Phoenix nets 4.8% at 40%, and a market with heavier vacancy and cooling turns 8.0% gross into less than that. Fix: convert every candidate to net yield before you rank them.
Reading a gross quote as net. A listing advertises a 9% yield on a $300,000 property, which reads as $27,000 of rent a year. It is, but taxes, insurance, and maintenance take $13,500, so NOI is $13,500 and the real net yield is 4.5%. Financed with $60,000 down at 6.5%, the $18,204 of debt service turns that 9% headline into a $4,704 annual loss, about $392 a month. Fix: ask which yield the quote means before you underwrite it.
Chasing the highest yield into tenant risk. A $120,000 house renting at $1,800 a month shows an 18.0% gross yield, the best number on the page. It is also the riskiest: two vacant months and heavy turnover can consume a fifth of the rent, and a 58% expense load leaves NOI of $8,960, a 7.5% net yield, and about $140 a month after the $7,281 mortgage. One eviction and a $4,000 make-ready, roughly $7,600, erases four and a half years of that. Fix: price the risk before chasing the number.
US vs UK yield convention: the same number, two definitions
In the U.S., an unqualified "yield" on a rental usually means net yield. In the U.K. and Australia, it usually means gross yield, often quoted on weekly rent. The confusion is terminological rather than mathematical: the same property can be described as a 9% yield or a 6% yield without anyone being wrong.
Two questions settle any quote that crosses a border: is the rent annual or weekly, and have operating expenses been subtracted? The U.S. convention answers net and annual; the U.K. and Australian convention usually answers gross, often weekly. Weekly rent is annualized by multiplying by 52, and rent quoted per calendar month by 12. After that the two markets are comparing the same numerator, and only the expense question is left. Nothing about the arithmetic differs across the two conventions; the label is doing all the work. When you see a yield with no qualifier, ask which definition the number is using.
Frequently asked questions
16 answers, no funnel.
What is a good rental yield?
A net yield (cap rate) of 6–10% is the typical target for U.S. rentals; 4–6% can work with strong appreciation, and 10%+ usually carries extra risk. Gross yields look 2–4 points higher and are a marketing favorite.
Is rental yield the same as cap rate?
Net rental yield is cap rate: NOI ÷ price. "Rental yield" by itself often means gross yield (all rent ÷ price), so always confirm which one the quote is.
Why is my gross yield high but my cash flow low?
Because the difference between rent and expenses, taxes, insurance, HOA, vacancy, maintenance, is where yield goes. Run the NOI and read net yield, not gross.
How does yield compare to REITs or index funds?
REITs quote yield on audited cash flows without maintenance calls; index dividends sit on a volatile base. Rental net yield looks higher because it excludes your time and capital costs, and adds tax depreciation REITs lack.
What's the difference between gross and net rental yield?
Gross yield is annual rent ÷ price; net yield subtracts operating expenses first, so it runs lower. U.S. investors usually mean net yield, which is the same as cap rate.
Is there one good yield threshold for every property?
No. A yield is only good relative to local comps for the same property type and to what safe money pays that year. Riskier income needs a wider spread.
Does rental yield include purchase costs?
Convention is price alone for both gross and net yield. For your own money, divide by all-in cost, price plus closing costs plus immediate rehab, the conservative version.
How do US and UK rental yield conventions differ?
U.S. quotes usually mean net yield (cap rate) on annual rent; U.K. and Australian quotes usually mean gross yield and often use weekly rent. Annualize weekly rent before comparing.
What's the difference between yield and total ROI?
Yield is annual income ÷ price for one year. No sale price, no appreciation. Total ROI adds appreciation, principal paydown, tax effects, and the sale across the whole hold.
Is 3.6% rental yield good?
3.6% gross yield is low, but not always bad. In a coastal US market where appreciation runs 4–5% a year, that yield plus price growth can beat 7% gross in a flat market. Yield is only half the return.
Where can I get 10% rental yield?
Mostly in Midwest and Southern US cash-flow markets like Cleveland, Memphis, and Birmingham, and in small multifamily or value-add properties. High yields often reflect higher management burden and slower appreciation. In coastal markets, 10% gross yield is rare.
Is 7% a good yield?
Depends which number. A 7% net yield sits in the healthy 6–10% band for US rentals. A 7% gross yield is different: roughly 3–5% net after expenses, which is thin unless appreciation carries it.
Does rental yield include the mortgage?
No. Rental yield is calculated on the property alone, ignoring financing. Gross yield uses rent, and net yield uses NOI. To see what your loan does to the return, use cash-on-cash, which subtracts debt service from the numerator.
Is a higher rental yield always better?
No. A higher yield usually means a lower price relative to rent, which often signals a weaker market, older housing, or riskier tenants. Compare the yield against the risk it carries, not against other yields alone.
Should I use gross or net yield to compare properties?
Use net yield for any comparison across markets or buildings, because expense loads differ. Gross yield is fine for a fast screen inside one market, where taxes, insurance, and HOA loads are similar.
Does rental yield change over time?
Yes. Rent, expenses, and price all move, so yield drifts. A property bought at a 7% net yield can slide to 5% if prices outrun rents, or climb to 8% if rent grows faster than price.