Gross yield vs net yield

Gross yield and net yield measure the income return from an investment, but they differ in what costs are deducted before the calculation. Both are used to compare and benchmark income-producing assets such as rental properties.

Gross yield

Gross Yield = (Annual Income ÷ Asset Value) × 100

Gross yield is simple to calculate and useful for quick comparisons across multiple properties or markets, but it ignores the real cost of holding the asset.

Net yield

Net Yield = ((Annual Income − Annual Holding Costs) ÷ Asset Value) × 100

Net yield includes loan interest, rates, insurance, maintenance, management fees, and any vacancy allowance. The result reflects the actual cash return the asset produces.

Example

A $700,000 property generating $35,000 in annual rent has a gross yield of 5.0%. After deducting $14,000 in annual holding costs, the net yield is 3.0%.

Why the distinction matters

• Gross yield can mislead — two properties with the same gross yield may have very different net returns once strata fees, vacancy, or maintenance differ
• Net yield reflects cash flow — it shows what the investor actually keeps before tax
• Bank lending decisions often use gross yield — but personal investment decisions should always consider net

When comparing investment opportunities, calculate rental yield on a net basis and stress-test the holding cost assumptions against rising interest rates and unexpected expenses.