How to Calculate Rental Yield: A Three-Step Lesson With a Live Receipt

Last reviewed: October 2026 · By the MortgageCompass Editorial Team · How we research

Rental yield is the rent a property earns each year as a percentage of what it cost. There are three versions, and each tells you something different. Gross yield is the headline number on listings. Net yield takes off the running costs and is what the property really earns. Cash-on-cash return adds your mortgage and shows what you earn on the money you actually put in. This lesson works through all three with one property, then lets you build your own receipt.

Lesson 1: Gross yield, the headline number

Our example is a $300,000 flat rented at $1,800 a month. Its gross yield is 7.2%. Gross yield is quick to calculate and useful for comparing a long list of properties, which is why agents and listing sites quote it. But it ignores every cost of owning the property, so on its own it always flatters the investment.

Lesson 2: Net yield, what the property really earns

Net yield subtracts the costs of running the property and divides by the full amount you paid, including buying costs such as transfer tax or stamp duty, legal fees and inspections. In the example, running costs come to about $10,500 a year, so the net yield is 3.6%, half the headline figure. The costs that make the difference are:

• Vacancy: even good properties sit empty between tenants. Allowing about 5% of the rent, two to three weeks a year, is a common starting point.
• Management: letting agents and property managers often charge a percentage of the rent collected, plus letting fees.
• Property tax or council rates, insurance and building charges: fixed costs you pay whether the property is let or not.
• Repairs and maintenance: many investors budget around 1% of the property value a year, more for older buildings.
• Other costs: safety certificates, licensing, accounting and small items add up.

The receipt: build your own

Enter your property, then switch each cost on or off and change the figures. The receipt shows how each cost eats into the rent, and all three yields update as you go. The defaults are the example above.

Try switching every cost off: the net yield jumps back toward the gross figure. That is exactly the gap between what a listing advertises and what you will earn.

Lesson 3: Cash-on-cash, the number that pays your bills

Most investors borrow. Suppose the buyer puts down $60,000, pays $9,000 in buying costs and borrows $240,000, paying about $16,000 a year in interest at today’s rates. The property that shows 7.2% on the listing now loses about $4,900 a year before tax, a cash-on-cash return of minus 7.1%.

The reason is simple: the property’s net yield of 3.6% is lower than the interest rate of about 6.7%. When that happens, every dollar you borrow costs more than it earns, and borrowing makes the return worse, not better. Investors in that position are relying on rent rises or capital growth to come out ahead, which may or may not happen. Check the current rate where you buy on our pages for the US, UK, Canada and Australia.

So what is a good rental yield?

There is no single answer, because yields vary widely between cities and property types, and lower-yield areas often have stronger price growth. A more useful test is to compare your net yield with your borrowing cost. If the net yield is comfortably above the interest rate, borrowing helps your return. If it is below, the property needs rent growth or price growth to pay off, and you need enough income to cover the shortfall each month. For comparing commercial or multi-unit properties, the related measure is the cap rate, and for holiday lets see our short-term rental calculator.

Homework: four checks before you trust a yield

1. Ask whether a quoted yield is gross or net. Listings almost always show gross.
2. Check the rent independently. Compare similar properties that have actually let, not just the asking rent in the advert.
3. Get the real fixed costs. Ask for the last year’s property tax or rates, building charges and insurance before you make an offer.
4. Remember tax. These yields are before income tax. Rental profit is taxable, and the rules on deducting mortgage interest differ between countries.

Sources

• IRS Publication 527: Residential Rental Property (United States)
• GOV.UK: Renting out your property (United Kingdom)

This guide is for informational purposes only and is not financial or tax advice. Example figures are illustrations. Rental income, costs and tax rules vary by location. Speak to a qualified adviser before you invest.