Gross yield
Is this listing worth a closer look?
5,4%
In the example
- Divided by
- Purchase price
- Counts running costs
- No
- Counts the mortgage
- No
- Use it for
- Sorting listings in minutes, never a decision on its own.
Rental return
How to calculate the return on a rental property, four ways
Gross yield, net yield, cap rate and cash-on-cash are four different questions about the same property, not four names for one number. Here is each formula, worked through on one flat with the numbers filled in, and a calculator to run your own.
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One flat, four answers
A two-bedroom flat, let unfurnished
- Bought for
- €200.000
- Rent a month
- €900
- Gross yield5,4%Rent over price, before any cost
- Net yield3,9%Rent after running costs, over price
- Cap rate3,5%Rent after running costs, over value today
- Cash-on-cash6,4%Cash left after the mortgage, over your own cash
Step 1
Gross rental yield: the fastest comparison
The rent a property brings in over a year, divided by what it costs. It ignores every expense of owning it, which is exactly why two listings can be compared on it in seconds, and exactly why it is the wrong number to act on alone.
A year of rent
- 1€900
- 2€900
- 3€900
- 4€900
- 5€900
- 6€900
- 7€900
- 8€900
- 9€900
- 10€900
- 11€900
- 12€900
Annual rent€10.800
Annual rent
€10.800
€200.000
Purchase price
5,4%
Gross rental yield
Gross rental yield = Annual rent ÷ Purchase price
Step 2
Net rental yield: what is left after running costs
Subtract what it actually costs to hold the property before dividing: insurance, maintenance, management, the charges a landlord rather than a tenant carries. What is left is closer to what the property actually earns.
From rent to net operating income
- Annual rent€10.800
- Landlord insurance−€400
- Maintenance and repairs set aside−€1.000
- Management and letting−€900
- Charges and property tax the owner pays−€700
- Net operating income€7.800
Net operating income
€7.800
€200.000
Purchase price
3,9%
Net rental yield
Net rental yield = (Annual rent − Annual running costs) ÷ Purchase price
Step 3
Cap rate: the same arithmetic, a different price
A capitalization rate is net operating income divided by what the property is worth today, not what you paid for it. The two only ever agree on the day you buy; from then on they read differently, on purpose. Divide the same net income by the purchase price instead and you get yield-on-cost, a separate figure that judges how the original purchase is performing rather than what the property is worth now.
Same income, two prices
The day you bought
- Net operating income
- €7.800
- Purchase price
- €200.000
3,9%Yield-on-cost
Today
- Net operating income
- €7.800
- Current market value
- €220.000
3,5%Cap rate
The band on top is the same net operating income in both columns.
Net operating income
€7.800
€220.000
Current market value
3,5%
Cap rate
Cap rate = Net operating income ÷ Current market value
Step 4
Cash-on-cash return: what a mortgage changes
Every formula above treats the property as if it were paid for outright. Borrow to buy it and a different question becomes the relevant one: how much did the cash you actually put in earn, once the mortgage is paid from the rent each year?
What borrowing changes
Who paid for the flat
- Your cash
- €44.000
- Deposit plus buying costs: €40.000 + €4.000
- The buying costs here are an illustration; taxes and fees on a purchase differ by country and region, see what applies where you buy.
- The bank’s loan
- €160.000
- Net operating income€7.800
- Annual mortgage payments−€5.000
- Pre-tax cash flow€2.800
3,9%Net yield on the whole flat
6,4%Cash-on-cash on your own money
Pre-tax cash flow
€2.800
€44.000
Cash invested (deposit plus costs)
6,4%
Cash-on-cash return
Cash-on-cash return = Annual pre-tax cash flow ÷ Cash invested
Which one matters
Four lenses on one question, and no universal benchmark
Each figure answers a different question, so a serious owner tracks more than one: gross yield for a fast first comparison, net yield and cap rate for what the property actually returns, cash-on-cash for what your own money earns once borrowing enters the picture.
Net yield
What does the property earn after it has been run?
3,9%
In the example
- Divided by
- Purchase price
- Counts running costs
- Yes
- Counts the mortgage
- No
- Use it for
- Judging a purchase, and comparing it with another investment.
Cap rate
What does it earn against what it is worth now?
3,5%
In the example
- Divided by
- Current market value
- Counts running costs
- Yes
- Counts the mortgage
- No
- Use it for
- Deciding whether to hold, sell or refinance.
Cash-on-cash
What does my own cash earn, with the mortgage paid?
6,4%
In the example
- Divided by
- Cash invested (deposit plus costs)
- Counts running costs
- Yes
- Counts the mortgage
- Yes
- Use it for
- Comparing a leveraged purchase with leaving the cash where it is.
There is no single figure that counts as good everywhere. Yields vary by country, city and even street, so the only honest benchmark is a handful of comparable properties nearby, matched on area, size and condition.
Where you buy
What the place adds to the price, and takes from the rent
The formulas are the same everywhere; the inputs are not. The tax on buying sits on top of the price, the tax on rent comes out of the return, and both are set by the country and often by the region. Here is the headline for where you are, which is a starting point and not tax advice.
Elsewhere
General guidance- Most countries charge a tax or duty when a property changes hands, and notary, lawyer or registry fees come on top.
- Rent is taxed in most places, but the base differs: some tax the rent after costs, others a notional income the state sets.
- Add the costs of buying to the cash you put in before you compare cash-on-cash returns across countries.
Rates change, and some depend on who buys and why. Check the rate that applies on your purchase date with the notary or conveyancer, and ask a tax adviser about your own situation.
Your own numbers
Rental return calculator
Change any figure and all four answers move with it. It starts on the flat from this page; replace the numbers with yours.
Gross yield
5,4%
Net yield
3,9%
Cap rate
3,5%
Cash-on-cash
6,4%
- Net operating income
- €7.800
- Pre-tax cash flow
- €2.800
Before tax. Worked out in your browser; nothing you type is sent or stored.
Where Dardaris fits
The yield on the rent that actually arrived
A formula uses the rent you expect. Dardaris reads the rent that lands in your bank, files every cost against the building it belongs to, and answers a yield question from those records, so an empty month or a late tenant shows up in the figure instead of hiding behind it.
Dardaris, answering from your records
What does flat 2B yield?
Two figures, because they answer different questions. The first is the lease; the second is what reached your bank this year.
- Gross yield on the rent in the lease5,4%€10.800
- Gross yield on the rent that arrived4,5%€9.000
The gap is two months the flat stood empty between tenants.
Rent and running costs, per property
Every amount is filed against the building it belongs to, not lumped into one portfolio total.
Bank movements read and matched
Payments are read from the account and reconciled against what the lease expects, so a shortfall is caught the day it happens rather than the day you go looking.
What stays outside a formula
How the income itself is taxed depends on where you are; Dardaris reads the law that actually governs a building through its jurisdiction packs, but no formula on this page settles that question for you.
Questions about the numbers
What’s a good rental yield?
There is no single figure that counts as good everywhere: a yield of 3% is normal in some capital cities and would be considered poor in a market where 7% is typical. Compare a property against similar ones nearby, matched on area, size and condition, rather than against a number quoted for a different market entirely.
What’s the difference between yield and cap rate?
A yield, gross or net, is usually calculated against the price you paid. A cap rate is calculated against what the property is worth right now. The two only agree on the day you buy and can drift apart afterward as the market moves: a cap rate says how the property performs against today’s value, a yield-on-cost says how it performs against what you originally spent.
Does cap rate account for a mortgage?
No. Cap rate and both yields are calculated as if the property were owned outright; a mortgage never enters the formula. Cash-on-cash return is the figure that does account for it, dividing the cash flow left after mortgage payments by the cash you actually put in, rather than by the value of the property.
Which costs go into net yield?
The costs of running the property that the owner carries: landlord insurance, repairs and a provision for maintenance, management or letting fees, and the charges and property taxes that fall on the owner rather than the tenant. Mortgage payments stay out, because net yield judges the property as if it were owned outright; they come back in with cash-on-cash return.
Is rental yield worked out before or after tax?
Before tax. Every formula on this page works on pre-tax figures, because how rental income is taxed depends on the country, on how the property is held and on the owner’s own situation. Work out the yield first, then ask what tax does to it where the property is.
See what your own numbers look like
Hand Dardaris one building and it tracks the rent, the costs and the bank movements behind it from day one, so the yield and cap rate you calculate here are numbers you can check any time rather than a spreadsheet you update once a year.
14 days before the first charge · Nothing is switched on until you say so