Rental Yield Explained: Is That Property Worth Buying?

What Rental Yield Actually Means (And Why It's Not the Whole Story)

Rental yield is the annual income a property generates expressed as a percentage of its value. Think of it like the interest rate on a savings account—except the "account" is a house, and there are tenants, toilets, and tax implications involved.

There are three versions you'll encounter, and each tells you something different:

How to Calculate Gross Rental Yield

This is the starting point—simple, quick, and useful for initial screening.

That's a reasonable yield for a Midwest or Sun Belt market. In high-cost coastal cities like San Francisco or Boston, you'd often see gross yields between 3–4%—which is why cash flow investing in those markets is brutally hard.

Gross yield is your filter. Anything under 5% in a non-appreciation-heavy market deserves serious scrutiny before you go further.

Why Net Rental Yield Is the Number You Should Actually Trust

Gross yield ignores everything that costs money—and a lot of things cost money.

That's still workable—but notice how the number dropped almost 3 full percentage points. This is where deals that look great on a listing sheet start showing their real character.

Operating Costs to Include in Net Yield

Cash-on-Cash Return: What Leveraged Buyers Need to Know

If you're financing the property (and most investors are), gross and net yield don't capture the full picture. Cash-on-cash return measures what you actually earn on the cash you put in—after debt service.

What's a "Good" Rental Yield in the US?

There's no universal answer, but here are useful benchmarks most experienced investors use:

Markets like Detroit, Cleveland, Memphis, and Birmingham regularly produce gross yields of 9–12%+ — but they often come with higher vacancy risk and management challenges. Markets like Austin or Denver produce lower yields but stronger appreciation. Neither is universally better. Your strategy determines which metrics matter most.

The One Mistake Most New Investors Make With Yield Calculations

They use the asking price instead of the all-in cost.

Your real acquisition cost includes:

• Purchase price
• Closing costs (typically 2–5%)
• Immediate repairs or renovation before renting
• Carrying costs during vacancy before the first tenant moves in

Always calculate off what the deal actually costs you, not what the listing says. Running yield off the asking price overstates your actual return by exactly the ratio of unmodeled costs to real basis.

Use a Calculator to Run the Numbers Faster

You don't need a spreadsheet or a finance degree. The rental yield calculator above lets you input the purchase price, rent, and estimated expenses and outputs gross yield, net yield, and monthly cash flow in real time — before you waste time on due diligence for a deal that never made sense.

Running the math first also gives you negotiating leverage. If net yield only works at a $260,000 purchase price, you know exactly what offer to make.

FAQ: Rental Yield Questions Investors Actually Ask