Rental Yield Calculator (Gross, Net and Cap Rate)
Rental Yield Calculator (Gross, Net and Cap Rate)
What a rented property earns each year as a share of what it cost: the gross yield on the rent alone, the net yield after empty months and running costs, and the cap rate on the same income.
Net rental yield
A $60,00,000 flat let at $18,000 a month, empty one month a year, with $24,000 maintenance, $6,000 property tax, $3,500 insurance, a 5% letting fee and $3,00,000 of buying costs
Gross yield, net yield and cap rate
- R
- the monthly rent
- P
- the price, or the property’s value today
- v
- months empty in a year; f the letting fee as a decimal of rent collected
- costs
- maintenance, property tax and insurance for the year, paid by the owner
- B
- the one-off buying costs: stamp duty, registration, legal fees, brokerage
Worked example
A $60,00,000 flat let at $18,000 a month, empty one month a year, with $24,000 maintenance, $6,000 property tax, $3,500 insurance, a 5% letting fee and $3,00,000 of buying costs
Gross yield = 12 × 18,000 ÷ 60,00,000 = 2,16,000 ÷ 60,00,000 = 3.60%
Rent collected = 18,000 × 11 = $1,98,000; less the 5% fee = $1,88,100
NOI = 1,88,100 − 24,000 − 6,000 − 3,500 = $1,54,600
Net yield = 1,54,600 ÷ (60,00,000 + 3,00,000) = 2.45%
Cap rate = 1,54,600 ÷ 60,00,000 = 2.58%
Yields on a 60,00,000 property with the example’s costs, by monthly rent
| Monthly rent | Gross yield | Net yield | Cap rate |
|---|---|---|---|
| $12,000 | 2.40% | 1.46% | 1.53% |
| $15,000 | 3.00% | 1.96% | 2.05% |
| $18,000 | 3.60% | 2.45% | 2.58% |
| $25,000 | 5.00% | 3.62% | 3.80% |
Gross yield flatters; net yield is what you keep
The gross yield — a year’s rent divided by the price — is the figure most often quoted, because it is the easiest to work out. It is also the most flattering. It assumes the property is let every month and costs nothing to own. In the example the gross yield is 3.60%, but after one empty month, the letting fee, maintenance, property tax and insurance the owner keeps $1,54,600 a year, a net yield of 2.45% on everything paid to buy it.
The income left after vacancy and running costs, but before any loan payments and income tax, is the net operating income (NOI). Divided by the property’s value it is the capitalisation rate, or cap rate, the measure used to compare income properties. The only difference here between the net yield and the cap rate is the one-off buying costs: the net yield counts them, because you paid them, and the cap rate does not, because a buyer tomorrow would pay their own. That is why the example’s cap rate, 2.58%, is a little higher. If you enter today’s market value instead of the price you paid, the cap rate is the yield on the money you could release by selling.
Neither figure includes the change in the property’s value, which for many owners is most of the return, and neither includes a home loan. If you borrowed to buy, the EMI is not an operating cost: compare the NOI with the loan’s interest to see whether the rent covers the cost of the borrowed money, using the EMI calculator. Rent is usually taxable income, and the rules on what you may deduct differ by country, so check yours; this page works before tax. To compare the yield with another investment, the ROI calculator shows a total return. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do I calculate rental yield?
Gross yield = 12 × monthly rent ÷ price × 100. $18,000 a month on a $60,00,000 property is 3.60%. Net yield deducts empty months and running costs from the rent first.
What is the difference between net yield and cap rate?
Both divide the net operating income by what the property is worth. This page’s net yield adds the buying costs to the price; the cap rate uses the price or value alone. With no buying costs they are equal.
Should I include my home loan EMI?
Not in the yield. Yield and cap rate measure the property’s own income, before financing, so properties bought with and without loans can be compared. Compare the NOI with your loan interest separately.
Is a higher yield always better?
No. Higher yields often come with more empty months, more upkeep or slower price growth. Compare net yields, and remember that neither yield counts the change in the property’s value.
Related calculators
References
- Geltner DM, Miller NG, Clayton J, Eichholtz P. Commercial Real Estate Analysis and Investments. OnCourse Learning. Net operating income (rent collected less vacancy and operating expenses, before loan payments) and the capitalisation rate, NOI ÷ property value.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities and growing annuities; the level-payment loan formula.