Rental Yield Formula

Real Estate Formula • Published on July 30, 2026 • Last updated July 30, 2026

Mathematical Equation

$$\begin{aligned} \text{Gross Yield} &= \frac{\text{Annual Rent}}{\text{Purchase Price}} \times 100 \\ \text{Net Yield} &= \frac{\text{Annual Rent} - \text{Vacancy Loss} - \text{Annual Expenses}}{\text{Purchase Price}} \times 100 \end{aligned}$$

Variable Definitions

Annual Rent

Monthly rent × 12

Vacancy Loss

Annual Rent × Vacancy Rate% (income lost to expected vacant periods)

Annual Expenses

Sum of annual maintenance, property tax, insurance, and other recurring costs

Purchase Price

Original property acquisition cost

Detailed Explanation

In-Depth Guide

Gross rental yield gives a quick headline return relative to purchase price, but ignores costs. Net rental yield deducts expected vacancy losses and all recurring ownership expenses (maintenance, tax, insurance) to reveal the real cash yield a landlord actually earns — the standard, more reliable metric for judging whether a rental property is a good income investment.

How to Calculate: Step-by-Step

1. Calculate Annual Gross Rent = Monthly Rent × 12. 2. Calculate Gross Yield% = (Annual Gross Rent / Purchase Price) × 100. 3. Calculate Vacancy Loss = Annual Gross Rent × Vacancy Rate%. 4. Sum Annual Expenses = Maintenance + Property Tax + Insurance + Other costs. 5. Calculate Net Rental Profit = Annual Gross Rent − Vacancy Loss − Annual Expenses. 6. Calculate Net Yield% = (Net Rental Profit / Purchase Price) × 100.

Worked Calculation Example

Purchase Price = ₹45,00,000, Monthly Rent = ₹22,000, Vacancy Rate = 5%, Annual Maintenance = ₹15,000, Annual Tax = ₹8,000, Insurance = ₹3,000: - Annual Gross Rent = 22,000 × 12 = ₹2,64,000 - Gross Yield = (2,64,000 / 45,00,000) × 100 ≈ 5.87% - Vacancy Loss = 2,64,000 × 5% = ₹13,200 - Annual Expenses = 15,000 + 8,000 + 3,000 = ₹26,000 - Net Rental Profit = 2,64,000 − 13,200 − 26,000 = ₹2,24,800 - Net Yield = (2,24,800 / 45,00,000) × 100 ≈ 5.00%

Common Use Cases

  • Comparing rental income potential across multiple properties before purchase
  • Setting realistic rent expectations relative to property price
  • Assessing whether a rental property beats fixed-income alternatives like FDs

Frequently Asked Questions

Below 2% is considered low, 2-4% average, 4-6% good, and above 6% is considered excellent for Indian residential rental properties — commercial properties typically yield higher.

Net yield subtracts real recurring costs (vacancy, maintenance, tax, insurance) that gross yield ignores entirely, so net yield always gives a more conservative and realistic picture of actual returns.

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