Real estate
How do you calculate rental yield on a property?
Gross and net annual yield of a rental property.
Quick answer
Gross yield = (monthly rent × 12 ÷ purchase price) × 100. €650/month rent on a €120,000 property: (650 × 12 ÷ 120,000) × 100 = 6.5% gross. Net yield subtracts annual costs: with €1,800 costs, net = ((7,800 − 1,800) ÷ 120,000) × 100 = 5%.
Gross annual yield
6.5 %
- Net annual yield
- 5 %
- Annual rent
- $7,800.00
How it works
Gross yield is what agents quote; net yield is what you actually keep. Include taxes, condo fees, insurance, vacancy allowance and maintenance — omitting them makes every investment look better than reality.
Run net yield before you fall in love with a listing photo: add IMU/council tax, condo, insurance, 1–2 empty months and a maintenance reserve (~0.5–1% of value/year). Compare that net to your mortgage rate and to safer alternatives. A airbnb hosting book and a smart lock help if you go short-term; keep paperwork in a document organizer. General illustration only — not investment advice.
The yield is calculated on the purchase price, but the money that left your account was larger. Notary, agency commission, transfer taxes and the refurbishment needed before the first tenant commonly add ten to fifteen per cent on top — on a €120,000 flat that is fifteen to twenty thousand euros of capital that earns nothing extra — and a 6.5% gross computed on the price alone becomes closer to 5.6% computed on what you actually deployed. Agents quote the first number because it is the one on the listing. Recompute on total capital in, and compare that figure with what the same money would have done elsewhere.
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Frequently asked questions
What is a good rental yield?+
Varies by city: 4–6% gross is common in many Italian provincial cities; Milan and Rome centres may be 2–4%. Always compare net yield to your mortgage rate and to bond/ETF alternatives — a 5% gross that becomes 2% net after costs is not a win.
Gross vs net yield — which to use?+
Always calculate net before buying. Gross is useful for quick screening of listings; net determines whether cash flow is positive after the mortgage payment and the real annual costs.
Should I include expected vacancy?+
Yes — budget 1–2 months empty per year (roughly 8–15% of annual rent) unless you have long-term tenants. Student and seasonal markets need higher allowances.
Rental yield vs capital appreciation?+
Yield is income on purchase price; appreciation is price growth over time. Many prime-city flats have low yield but high appreciation potential — and vice versa in secondary markets. Model both; do not buy on yield alone.
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