Explained! Net Yield and Gross Yield

Net Yield and Gross Yield are widely accepted terms used in real estate investing to assess the profitability of a property. Here are the commonly agreed definitions:

Gross Yield:

Gross Yield is a measure of the property’s income generation potential before deducting any expenses. It is calculated by dividing the annual rental income (from either short-term or long-term rentals) by the purchase price of the property.

Gross Yield provides a percentage that indicates the property’s income relative to its cost.

Net Yield:

Net Yield takes into account the expenses associated with the property, providing a more accurate measure of the actual return on investment. It is calculated by subtracting the property’s annual expenses (such as management fees, maintenance costs, and utilities) from the annual rental income and then dividing it by the purchase price. Net Yield reflects the income remaining after deducting the property’s operational costs.

These yield calculations help investors evaluate the potential profitability of a property, allowing them to compare different investment opportunities and make informed decisions based on their financial goals and risk tolerance.