Investors in Mumbai, Dubai and London all ask the same question: is this rent good for the price? Three simple numbers answer it. Our Property Lab calculates all three side by side, but you can do them on the back of an envelope.
1. Gross yield
Annual rent divided by price, as a percentage.
Example (invented, for arithmetic only): price 1,00,00,000, rent 25,000 a month. Annual rent is 3,00,000. Gross yield is 3,00,000 / 1,00,00,000 = 3.0%.
2. Net yield
Take off what you really pay to own and let the property: months it sits empty, maintenance and service charges, property tax, management fees. Divide what is left by the price, and, if you want to be strict, by the price plus the buying costs.
Continuing the example: if 8% of the year is vacant, maintenance and tax come to 40,000 a year, then rent collected is 2,76,000, less 40,000 is 2,36,000. Net yield is 2,36,000 / 1,00,00,000 = 2.36%.
Try it with your own numbers
Open the Rental yield and ROI calculator
Type a price, a rent and your costs to see gross and net yield, cash-on-cash and a 10-year return. Rupees, dirhams, dollars and more.
Open the Rental yield and ROI calculator3. The spread over a safe bond
A government bond pays a yield with far less hassle than a flat. The spread is net yield minus the local government bond yield. If the 10-year government bond yields more than your net rental yield, the rent alone is not paying you for the extra risk and effort. The reason people still buy is price growth, so ask honestly how much growth you are relying on.
We do not quote today's bond yield in this post, because it moves daily. Look up the current figure at the central bank or market-data source for your country, and type it into the Property Lab with the date. The tool lets you edit it and records the "as of" date.
What the number cannot tell you
- Yield ignores price growth and falls, taxes on gains and your exchange rate.
- A loan changes the picture. Interest can eat the net yield, so look at cash-on-cash return and monthly cash flow, not only yield.
- Selling takes time. A property that is hard to sell deserves a higher yield.
The Property Lab shows a "what would flip this" chart so you can see which assumption matters most, and a bull and bear case so you can see how wrong you can be.
This is general information, not investment advice.
