Rental Yield Calculator
Determine the gross yield, net yield, and cash-on-cash return on any rental property given purchase price, rent, vacancy, and operating expenses.
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Enter your values above to see the results.
Tips & Notes
- ✓Net yield below 4% rarely justifies the risk and illiquidity of rental property ownership — investors are better served by high-yield savings or diversified bond funds at comparable rates.
- ✓The expense ratio for rental properties typically runs 35-45% of gross rent when all items are included — underestimating expenses is the most common analysis error among new investors.
- ✓Cash-on-cash return is the most relevant metric for leveraged investors — it measures the actual return on dollars invested, unlike gross or net yield which ignore financing costs.
- ✓A 5% vacancy assumption means budgeting for 18 days of vacancy per year — realistic for most markets, though single-family homes tend to have lower turnover than multi-family.
- ✓Compare your net yield against the current 10-year Treasury yield — if the risk-free rate exceeds your net yield, you are not being compensated for the risk and illiquidity of real estate.
- ✓Track actual versus projected yields annually — most rental property analyses use optimistic assumptions; comparing projections to actual results improves future investment discipline.
Common Mistakes
- ✗Using gross yield as the investment decision metric — gross yield ignores all expenses and produces meaninglessly optimistic return figures that bear no relationship to actual returns.
- ✗Not modeling vacancy — a 0% vacancy assumption inflates NOI by 5-10% versus a realistic 5-10% vacancy allowance, which can turn a marginally positive investment into a clearly good or bad one.
- ✗Underestimating annual operating expenses — taxes, insurance, maintenance, management, and reserves together commonly reach 40-50% of gross rent, not the 20-25% many new investors assume.
- ✗Ignoring capital expenditure reserves — budgeting only for routine maintenance and ignoring eventual roof, HVAC, appliance, and flooring replacement leads to unexpected large expenses that destroy returns.
- ✗Comparing cash-on-cash return before and after financing without clarity on which is being presented — always specify whether the return figure includes or excludes mortgage payments.
- ✗Using seller-provided proforma income without verification — verify actual lease amounts, actual expenses from tax returns, and actual vacancy history before accepting any seller income projections.
Rental Yield Calculator Overview
Rental yield analysis separates three distinct return measures that answer different questions about an investment property. Gross yield measures headline income relative to price. Net yield measures actual income after expenses. Cash-on-cash return measures the return on cash invested after accounting for financing. Each tells a different story about the investment.
A property with a strong gross yield may have poor net yield due to high expenses. A property with good net yield may have poor cash-on-cash due to high leverage costs. All three must be evaluated together.
What each field means:
- Property Price — the purchase price of the investment property
- Monthly Rent — expected gross monthly rental income at full occupancy
- Annual Expenses — all operating costs: taxes, insurance, maintenance, management, and reserves
- Vacancy Rate — expected percentage of time the unit is unoccupied; 5-10% is typical
- Down Payment Pct — percentage of purchase price paid upfront; determines the cash invested
What your results mean:
- Gross Yield — annual rent divided by property price; the top-line return before any deductions
- Net Yield — effective annual rent minus all expenses divided by property price; the true income return
- Cash-on-Cash Return — annual net income divided by down payment; return on actual cash invested
- Annual NOI — Net Operating Income; gross rent after vacancy and expenses, before financing
- Monthly Net Income — the monthly cash left after all operating expenses before mortgage payment
Example — $280,000 property, $1,900/month rent, $9,500 annual expenses, 5% vacancy, 25% down:
Gross annual rent: $1,900 x 12 = $22,800 Vacancy loss (5%): $1,140 Effective gross income: $21,660 Annual operating expenses: $9,500 Net Operating Income: $21,660 - $9,500 = $12,160 Gross yield: $22,800 / $280,000 = 8.14% Net yield: $12,160 / $280,000 = 4.34% Down payment (25%): $70,000 Cash-on-cash return: $12,160 / $70,000 = 17.4% (before mortgage payments) Monthly NOI: $1,013 Mortgage on $210,000 at 7.5% / 30yr: $1,468 Monthly cash flow: $1,013 - $1,468 = -$455 (negative after financing)
EX: Impact of vacancy rate on annual NOI — $1,900/month rent, $9,500 expenses 0% vacancy: NOI = $13,300, net yield 4.75%, cash-on-cash 19.0% 5% vacancy: NOI = $12,160, net yield 4.34%, cash-on-cash 17.4% 10% vacancy: NOI = $11,020, net yield 3.94%, cash-on-cash 15.7% 15% vacancy: NOI = $9,880, net yield 3.53%, cash-on-cash 14.1% Even a 10% vacancy rate reduces annual NOI by $2,280 — the equivalent of 1.2 missed mortgage payments.
Net yield by rent and expense level — $300,000 property:
| Monthly Rent | Expenses 30% | Expenses 40% | Expenses 50% |
|---|---|---|---|
| $2,000 | 5.6% | 4.8% | 4.0% |
| $2,500 | 7.0% | 6.0% | 5.0% |
| $3,000 | 8.4% | 7.2% | 6.0% |
Cash-on-cash return by down payment — $12,000 annual NOI:
| Property Price | 20% down | 25% down | 30% down |
|---|---|---|---|
| $200,000 | 30.0% | 24.0% | 20.0% |
| $280,000 | 21.4% | 17.1% | 14.3% |
| $350,000 | 17.1% | 13.7% | 11.4% |
The gap between gross yield and cash-on-cash return after financing reveals the full cost of leverage. A property showing a 17% cash-on-cash return before mortgage may produce negative cash flow after a 7.5% mortgage on 75% of the value — because the financing cost consumes more than the NOI. In high-rate environments, this gap widens and makes positive cash flow harder to achieve with standard leverage.
Frequently Asked Questions
Gross yield is annual rent divided by property price — it measures the top-line income return before any expenses. A $300,000 property renting for $2,500/month has a gross yield of 10% ($30,000 / $300,000). Net yield subtracts all operating expenses (taxes, insurance, maintenance, management, vacancy) from the gross rent before dividing by property price. The same property with $12,000 in annual expenses and 5% vacancy generates NOI of $16,500 and a net yield of 5.5%. Net yield is the meaningful return figure; gross yield is useful only for quick market comparisons.
Gross rental yield benchmarks vary significantly by market type. In high-appreciation urban markets, gross yields of 4-6% are common. In secondary and tertiary markets, gross yields of 8-12% are achievable with more modest appreciation expectations. Properties meeting the 1% rule (monthly rent equals 1% of purchase price) have a 12% gross yield. For investment viability, gross yield needs to be high enough that after expenses and financing, the property generates positive cash flow — typically requiring gross yields of 9-12% at current interest rates.
Cash-on-cash return measures the annual cash flow after all expenses and mortgage payments as a percentage of total cash invested. Total cash invested includes the down payment plus closing costs and any initial renovation. Formula: cash-on-cash return = annual net cash flow / total cash invested. If you invest $80,000 in a property and it generates $6,400 in annual cash flow after all expenses and mortgage payments, the cash-on-cash return is 8%. This is the most relevant return metric for leveraged investors because it reflects the actual return on the cash they committed.
Vacancy reduces effective gross income by the vacancy rate applied to annual rent. A 5% vacancy on $30,000 annual gross rent reduces effective income by $1,500. A 10% vacancy reduces it by $3,000. Beyond the direct income loss, vacancy periods also incur ongoing expenses without corresponding income, plus turnover costs for cleaning, advertising, and minor repairs. Properties with strong demand characteristics — desirable location, good condition, competitive rent pricing — tend to sustain lower vacancy rates, compressing the difference between gross and effective income.
Operating expenses are the primary lever separating a good rental investment from a poor one. The expense ratio typically ranges from 30-50% depending on property age, location, and management approach. Key expense categories: property taxes, insurance (0.25-0.5% of value annually), maintenance and repairs (1-2% of value annually), property management (8-12% of collected rent), and vacancy allowance (5-10% of potential rent). Many investors underestimate expenses by 20-30%, which produces good returns in the analysis but negative cash flow in operation.
Compare net yield to risk-free rates (10-year Treasury) and risk-adjusted alternatives. If the 10-year Treasury yields 4.5% and your net yield is 5%, the extra 0.5% must compensate for illiquidity, leverage risk, management time, capital concentration, and operational risk. Most financial analysis suggests rental property should generate a net yield premium of 2-3% above risk-free rates to adequately compensate for these additional risks. A 4-5% net yield when Treasuries yield 4.5% is not compelling; a 7-8% net yield with strong market fundamentals justifies the risk premium.