Gross vs net rental yield, and which one to trust
Why gross and net yield can tell different stories about the same property, how each is worked out, and when to lean on one over the other.
The two yields measure different things
Gross yield is the headline number in most listings because it is simple: annual rent divided by price. It is useful for a first pass and for comparing many properties quickly. Net yield goes a step further by removing the yearly running costs, so it shows how much of that headline rent survives after the property is actually operated. A place with an eye-catching gross yield can turn ordinary once high service charges, insurance and maintenance are counted, which is exactly why the calculator shows both.
How the numbers are built
Gross yield uses the formula rent divided by value times 100. Net yield keeps the same value in the denominator but replaces rent with rent minus expenses. Because the value stays fixed, the gap between the two yields is driven entirely by how large your expenses are relative to the rent. On a 250,000 property earning 20,000 a year, 5,000 of costs turns an 8 percent gross yield into a 6 percent net yield, a two point drop that comes straight from the cost ratio.
What each figure leaves out
Neither yield includes your mortgage, since financing varies from buyer to buyer and would make properties hard to compare. Neither includes income tax, which depends on your personal situation, nor capital growth, which is a separate return entirely. Treat yield as the operating return of the asset itself. To judge the return on the cash you personally put in, pair it with a cash-on-cash calculation that does factor in the loan.
Choosing which yield to act on
Use gross yield to screen a long list and spot outliers worth a closer look. Use net yield to make the actual decision, because it reflects the money left after the property is run. When you compare two properties, make sure the expense assumptions behind each net yield are consistent, otherwise the comparison rewards optimistic cost estimates rather than genuinely better investments.