How to use the rental yield calculator
- Enter the property price. Use the purchase price, or today's value if you already own it.
- Enter the rent per month you collect or expect.
- Optionally set a vacancy allowance and your operating costs per year to see the net yield. Leave the mortgage out of the costs.
- Read the gross yield, the net yield and the steps that connect them.
Formula
Annual rent = monthly rent x 12
Gross yield = annual rent / price x 100%
Rent after vacancy = annual rent x (1 - vacancy %)
Net operating income = rent after vacancy - yearly operating costs
Net yield = net operating income / price x 100%
Years of gross rent to equal the price = price / annual rent, which is the inverse of the gross yield.
A $300,000 property that rents for $1,500
Annual rent is $1,500 x 12 = $18,000, so the gross yield is $18,000 / $300,000 = 6%. With a 5% vacancy allowance the rent that arrives is $17,100. If yearly operating costs are $5,400, net operating income is $11,700 and the net yield is $11,700 / $300,000 = 3.9%.
The same figures say it would take about 16.67 years of gross rent to add up to the price. All of these percentages are measures of the numbers you enter, and none says whether the property is a good purchase.
Gross yield versus net yield
Gross yield uses rent only, which makes properties easy to compare quickly but ignores what it costs to own them. Net yield subtracts vacancy and operating costs such as property tax, insurance, repairs, management and utilities.
Net yield is the same calculation as a capitalization rate, so you can also use the cap rate calculator. The net operating income calculator lets you list each cost on its own line.
What yield leaves out
Yield does not include the mortgage, the cash you put in, rent growth, changes in the property's value, income taxes or the cost of finding tenants. Two properties with the same yield can have very different returns once financing is added.
For returns that count your down payment and loan, use the cash on cash return calculator or the rental property calculator. Treat any yield as a screening number, and compare it against figures you gather for your own market.
Assumptions and limits
- Rent is the same every month of the year.
- The vacancy allowance is a percent of a full year of rent and is an example value you can change.
- Operating costs are yearly amounts you enter and exclude the mortgage, depreciation and income taxes.
- Price changes, rent growth and financing are not modeled.
Frequently asked questions
How do you calculate rental yield?
Multiply the monthly rent by 12, then divide by the property price and multiply by 100. The result is the gross rental yield as a percent of the price.
What is the difference between gross and net rental yield?
Gross yield counts rent only. Net yield first subtracts vacancy and the yearly costs of running the property, so it is always lower unless those costs are zero.
Is net yield the same as cap rate?
Yes when the costs are operating costs only. Both divide net operating income by the price, so they give the same percent for the same inputs.
Should the mortgage be included in operating costs?
No. Yield measures the property itself, so loan payments are left out. Use a cash on cash calculation when you want to include financing.