Gross Yield vs Net Yield: The Number That Makes Bad Deals Look Good
Understand the difference between gross rental yield and net yield, why gross yield flatters weak deals, and how to compare properties fairly.
By David Chen, Buy-and-Hold Investor · Last reviewed: August 11, 2026 · 7 min read
Run the numbers while you read
Open the matching calculator and test each assumption against your own deal.
The Difference in One Sentence
Gross yield is annual rent divided by property price, before any expenses. Net yield is annual rent minus operating expenses, divided by property price. Gross yield tells you what a property collects, and net yield tells you what it actually keeps.
The gap between the two is where most beginner mistakes live. A listing that advertises a high gross yield can hide taxes, insurance, repairs, management, and vacancy that quietly erase most of the return.
The Two Formulas
Gross Yield = Annual Rent / Property Price | Net Yield = (Annual Rent - Operating Expenses) / Property Price
Use the all-in acquisition cost, not just the sticker price, when you want an honest denominator. Adding closing costs and any upfront repairs to the price gives a net yield that reflects what you truly paid.
Net yield deliberately excludes mortgage payments so it measures the property itself, independent of how you financed it. That makes it comparable across deals with different loans, which is why it is the yield operators trust.
Why Gross Yield Is Misleading
- It ignores property taxes, which vary widely between markets and can swing net return.
- It ignores insurance, repairs, capital expenses, and management fees.
- It ignores vacancy, so a fully occupied assumption inflates the number.
- It makes high-expense markets look identical to low-expense markets at the same rent.
- It rewards cheap properties that carry hidden operating problems.
Worked Example
A property lists for $200,000 and rents for $1,750 per month, or $21,000 per year. Gross yield is 10.5%, which looks excellent. On paper, this is the kind of number that gets investors to make offers sight unseen.
Now subtract real expenses: $3,000 taxes, $1,400 insurance, $2,100 repairs and capital reserve, $1,680 management, and a 6% vacancy allowance of about $1,260. Operating expenses total roughly $9,440. Net yield falls to about 5.8%, nearly half the headline gross number. Same property, very different story.
How to Use Each Number
Gross yield is fine as a fast first filter when you are scanning dozens of listings and need a quick way to rank them. Just never treat it as a decision metric.
Net yield is the number you underwrite on. Once a property passes the gross-yield screen, rebuild it with realistic expenses and vacancy, then compare its net yield against other deals and against the returns you could earn elsewhere.
Frequently Asked Questions
What is a good net rental yield?
It depends heavily on the market, but many buy-and-hold investors look for net yields in the 4% to 7% range on residential rentals. Higher-growth markets often carry lower net yields because appreciation makes up part of the total return.
Does net yield include the mortgage?
No. Net yield deducts operating expenses but not debt service, so it measures the property independent of financing. To see the return after the loan, use cash flow and cash-on-cash return instead.
Which yield should I use to compare properties?
Use net yield for real comparisons because it accounts for the expenses that differ between properties and markets. Gross yield is only useful as a quick first screen before you underwrite the deal in detail.
David Chen · Buy-and-Hold Investor, Denver, CO
David is a long-term rental investor who manages a portfolio of buy-and-hold properties. He writes from the operator seat about expenses, reserves, and the numbers that decide whether a rental actually performs.
Educational Disclaimer
All calculations are estimates for educational and planning purposes only. PropertyFlowTools.com does not provide financial, tax, legal, lending, or investment advice. Verify calculations and consult qualified professionals before making property or financing decisions.