Rental Yield.

In plain English

Rental yield is the annual rent a property produces expressed as a percentage of its price or value. Gross rental yield uses the full yearly rent divided by the price, while net rental yield subtracts operating expenses first to show the income you actually keep. It is a quick way to gauge how hard your money works as income, separate from any price appreciation. Because the gross version ignores costs, the net version gives a more honest picture.

01Why it matters

It tells you at a glance how much income a property throws off relative to its cost, which matters if you are buying for cash flow rather than betting on the price going up.

02The math, step by step

A condo costs 250,000 dollars and rents for 1,500 dollars a month, or 18,000 dollars a year. Gross rental yield is 18,000 divided by 250,000, which is 7.2 percent. If operating expenses run 6,000 dollars a year, net income is 12,000 dollars, so net rental yield is 12,000 divided by 250,000, which is 4.8 percent. The gap between the two is why you always check the net number.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT