Net Rental Yield Calculator Formula
Understand the math behind the net rental yield calculator. Each variable explained with a worked example.
Formulas Used
Net Rental Yield
net_yield = (net_income / purchase_price) * 100Net Annual Income
net_annual_income = net_incomeEffective Gross Income
effective_income = effective_annualVariables
| Variable | Description | Default |
|---|---|---|
purchase_price | Purchase Price(USD) | 275000 |
monthly_rent | Monthly Rent(USD) | 2200 |
vacancy_rate | Vacancy Rate(%) | 5 |
annual_expenses | Annual Operating Expenses(USD) | 5500 |
gross_annual | Derived value= monthly_rent * 12 | calculated |
effective_annual | Derived value= gross_annual * (1 - vacancy_rate / 100) | calculated |
net_income | Derived value= effective_annual - annual_expenses | calculated |
How It Works
Net Rental Yield
Net rental yield provides a realistic return picture by deducting vacancy losses and operating expenses from gross rent.
Formula
Net Yield = (Effective Rent - Expenses) / Purchase Price x 100
Where Effective Rent = Gross Rent x (1 - Vacancy Rate)
This Accounts For
Worked Example
A $275,000 property rents for $2,200/month with 5% vacancy and $5,500 annual expenses.
- 01Gross annual rent: $2,200 x 12 = $26,400
- 02Effective rent after vacancy: $26,400 x 0.95 = $25,080
- 03Net income: $25,080 - $5,500 = $19,580
- 04Net yield: $19,580 / $275,000 x 100 = 7.12%
Frequently Asked Questions
How much lower is net yield than gross yield?
Typically net yield is 2-4 percentage points lower than gross yield. The exact difference depends on vacancy rates and expense ratios in your market.
What expenses should I include?
Include property taxes, insurance, repairs, maintenance, property management fees, landscaping, HOA dues, and a reserve fund. Exclude mortgage payments, which are financing costs, not operating expenses.
What net yield should I target?
A net yield above 5% is generally considered attractive for residential properties. Higher-risk markets may offer 8-12% while stable urban markets may only offer 3-5%.
Ready to run the numbers?
Open Net Rental Yield Calculator