1. The Gross Rental Yield Formula
Gross rental yield is the quickest metric to compare potential properties. It measures annual rental income as a percentage of the total property purchase cost.
Formula: (Annual Rent Income ÷ Total Acquisition Cost) × 100.
2. Net Rental Yield: Accounting for Hidden Ownership Costs
Gross yield can be misleading because it overlooks regular landlord expenses like HOA dues, property taxes, insurance, and routine repairs.
Formula: [(Annual Rent Income - Annual Operating Expenses) ÷ Total Acquisition Cost] × 100.
- Property insurance and recurring property tax
- HOA dues, syndic fees, and building maintenance
- Vacancy allowance (typically 5% of annual rent)
3. Real-World Calculation Example
Imagine a property purchased for $200,000 with $10,000 in closing costs (Total: $210,000). Rented at $1,400/month ($16,800/year).
Gross Yield = ($16,800 ÷ $210,000) × 100 = 8.0%. If annual operating expenses total $2,500, the Net Yield is [($16,800 - $2,500) ÷ $210,000] × 100 = 6.8%.
Key Takeaways
Tracking all income and expense line items in a dedicated real-time ledger gives you complete clarity on your property's actual cash-on-cash return.
