Is this rental property a good investment? Check the yield.
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Gross rental yield is a year's rent divided by the price. Net yield (or cap rate) subtracts vacancy, management fees and running costs first, giving a truer picture.
If you use a mortgage, cash flow after interest and the cash-on-cash return on your deposit show how hard your own money is working.
| Property price | 300000 |
| Monthly rent | 1800 |
| Yearly costs (insurance, maintenance, fees) | 3000 |
| Vacancy | 4% |
| Letting / management fee | 8% |
| Buying costs | 0 |
| Deposit | 25% |
| Mortgage rate (0 = cash) | 0% |
| Currency | $ Dollar |
| Gross rental yield | 7.2% |
| Net yield (cap rate) | 5.36% |
| Net operating income | $16,077 a year |
7.2% gross.
| Property price | 200000 |
| Monthly rent | 1100 |
| Yearly costs (insurance, maintenance, fees) | 3000 |
| Vacancy | 4% |
| Letting / management fee | 8% |
| Buying costs | 0 |
| Deposit | 25% |
| Mortgage rate (0 = cash) | 5% |
| Currency | £ Pound |
| Gross rental yield | 6.6% |
| Net yield (cap rate) | 4.33% |
| Net operating income | £8,658 a year |
| Interest-only mortgage cost | £7,500 a year |
| Cash flow | £1,158 a year (£97 a month) |
| Cash-on-cash return | 2.32% |
4.33% net.
Many investors look for 5–8% gross; net yields of 4%+ are usually considered decent.
Gross ignores costs; net subtracts them. Net is what really matters.
Net operating income ÷ property value — the same as net yield before financing.
Yearly cash flow after mortgage costs ÷ cash you put in (deposit and buying costs).