Gross yield, net yield and cash flow
Three different questions are often mixed up under the word yield:
Gross yield
Gross yield = annual rent ÷ purchase price × 100
The headline figure. It ignores every cost, so it is good for a first filter and poor for a decision.
Net yield
Net yield = (rent collected − running costs) ÷ purchase price × 100
Rent collected is annual rent minus your vacancy allowance. Running costs are property tax or council tax, insurance, the management fee and repairs. Mortgage payments are not a running cost in this definition, which keeps the figure comparable between a cash buyer and a borrower. The income left before the mortgage is called net operating income, and net operating income divided by price is the cap rate, so on this page net yield and cap rate are one number.
Cash flow
Annual cash flow = net operating income − mortgage payments
This is what lands in your pocket before income tax. If you also enter the cash you put in (deposit plus purchase costs), the tool shows cash-on-cash return: annual cash flow divided by that cash.
Worked example
Defaults: a $300,000 property rented at $1,800 a month, a 5% vacancy allowance, a 10% management fee on rent collected, $3,000 property tax, $1,200 insurance, $1,500 repairs and $14,400 a year of mortgage payments.
Annual rent $21,600 (1,800 x 12) Gross yield 7.20% (21,600 / 300,000) Vacancy (5%) -$1,080 -> rent collected $20,520 Management (10%) -$2,052 (of 20,520) Other costs -$5,700 (3,000 + 1,200 + 1,500) Net op. income $12,768 -> net yield 4.26% Mortgage -$14,400 Cash flow -$1,632 a year (-$136 a month)
The property looks healthy on gross yield (7.20%) yet loses money each month after the mortgage. That gap is the reason to look beyond the headline figure.
What a good yield looks like
There is no single good number. Reasonable yields differ by country, city, property type and interest rates, and a higher yield usually comes with higher risk, such as weaker tenant demand or more repairs. Sensible ways to judge a result:
- Compare net yield with your mortgage interest rate. If the yield is well below the rate, the property relies on price growth to make sense.
- Compare two properties with the same method, using the same cost assumptions.
- Stress-test it: raise vacancy, repairs and the mortgage rate and see whether cash flow stays acceptable.
We do not publish benchmark yields by market because we cannot verify them to a source. Check local listing data and an agent’s advice for your area.
Costs people forget
- Tax on the rent (income tax) and any tax when you sell. Everything here is before tax.
- Purchase costs such as closing costs or, in the UK, Stamp Duty. See our UK stamp duty calculator and closing cost calculator.
- Service charges, ground rent and licensing for flats and regulated rentals.
- Void periods longer than your vacancy figure, tenant changeover costs and letting fees.
- Major repairs such as a roof or boiler, which a flat percentage allowance smooths out.
Frequently asked questions
What is the difference between gross and net rental yield?
Gross yield is annual rent divided by the purchase price. Net yield first subtracts running costs such as tax, insurance, management and repairs, so it is the more realistic figure for comparing properties.
Is net yield the same as cap rate?
In this calculator, yes. Both divide income after running costs and before mortgage payments by the purchase price. Some sources use slightly different cost lists, so compare like with like.
Does the yield include my mortgage?
No. Net yield and cap rate exclude financing. Mortgage payments only enter the cash flow and cash-on-cash figures, which show what you actually keep after paying the lender.
Should I use gross or net yield to compare properties?
Use net yield for any serious comparison. A high gross yield can hide large management fees, high property taxes or frequent repairs that leave a lower net yield than a cheaper-looking property.
Does this work for UK buy-to-let?
Yes for the yield maths. Choose the pound sign, enter council tax or other property costs as the annual tax figure, and remember Stamp Duty, letting fees and income tax are not part of the result.