How to use the rental yield calculator
- Choose the base. Price only gives the yield usually quoted in listings. Price plus purchase costs gives the yield on everything you spend to own the property, including closing costs and any repairs before the first tenant.
- Enter the price and the monthly rent. Use market rent for similar units, not an optimistic asking rent.
- Enter vacancy and the management fee as percentages. Vacancy is the share of the year’s rent you expect to lose to empty weeks and unpaid rent; management is charged on the rent actually collected.
- Enter the yearly costs: property tax, insurance, maintenance and anything else the owner pays, such as HOA fees or utilities. Leave out mortgage payments.
The table under the results shows both yields at rents from 20% below to 20% above yours.
The formulas
Net income = Rent × 12 − Vacancy − Management − Tax − Insurance − Maintenance − Other costs
Net yield = Net income ÷ Cost baseThe cost base is the price, or the price plus purchase costs. Vacancy is a percent of gross rent; the management fee is a percent of rent collected after vacancy.
A worked example
A condo costs $320,000 plus $9,000 of purchase costs, a base of $329,000.00. It rents for $2,300 a month, or $27,600.00 a year, so the gross yield is 8.39%.
Vacancy of 5% costs $1,380.00 a year and the 8% management fee $2,097.60. Adding tax of $3,800, insurance of $1,500 and maintenance of $2,400, costs and vacancy take $11,177.60, or 40% of the rent.
Net income is $16,422.40, or $1,368.53 a month, and the net yield is 4.99%. Measured on the price alone, the gross yield would be 8.63% and the net yield 5.13%.
Why gross yield flatters
Gross yield is easy to calculate from a listing, which is why agents quote it. But it treats every dollar of rent as income, and in practice a large share of rent goes to costs that do not scale with the price. Tax, insurance and repairs on a cheap house can cost nearly as much as on a dearer one, so the gap between gross and net is widest exactly where gross yields look most attractive.
| Condo in the example | Cheaper older house | |
|---|---|---|
| Price | $320,000 | $160,000 |
| Monthly rent | $2,300 | $1,500 |
| Gross yield | 8.39% | 10.78% |
| Costs as a share of rent | 40% | 61% |
| Net yield | 4.99% | 4.21% |
The older house looks far better on gross yield, but its higher vacancy, tax and maintenance take a larger share of the rent and its net yield ends up below the condo’s. Always compare properties on net yield, with costs estimated for each one.
Yield, cap rate and cash-on-cash
These three measures are often confused:
- Net yield divides net income by what the property cost, before any mortgage.
- Cap rate is essentially the same calculation, usually on the price or current market value. Our cap rate calculator works it both ways, including valuing a property from a market cap rate.
- Cash-on-cash return subtracts mortgage payments from the income and divides by the cash you invested. It is the only one of the three that reflects your financing, and it is covered by the rental property calculator.
Yield measures the property; cash-on-cash measures your deal. A property with a 4.99% net yield bought with a mortgage at a higher interest rate will produce a cash-on-cash return below its yield, because the loan costs more than the property earns.
What changes the yield most
Rent matters more than anything else, because most costs are fixed: in the example, a rent 10% lower, $2,070 a month, takes the net yield from 4.99% to 4.26%, while costs stay almost the same. The management fee is the largest controllable cost; self-managing lifts the net yield to 5.63%, at the price of your own time.
What this calculator does not include
Yield is a snapshot of one year. It does not include mortgage payments, income tax, depreciation, rent growth or changes in the property’s value, and it treats maintenance as a steady yearly amount even though real repair bills arrive unevenly. For a full projection over the years you hold a property, use the rental property calculator.