Gross rental yield
Gross rental yield is annual rent divided by purchase price. On a $320,000 property renting for $2,200 per month: ($26,400 ÷ $320,000) = 8.25%. It ignores every expense — taxes, insurance, repairs, management, vacancy — making it useful only as a quick screening filter, not a final verdict on whether a deal works.
Gross yield is most commonly used to compare properties across markets without needing expense data. A property with 10% gross yield in a high-vacancy market may underperform one with 7% gross yield in a stable metro once vacancies are factored in.
Net rental yield
Net yield (sometimes called net rental yield) subtracts operating expenses before dividing by price. Using the same $320,000 property with $10,400 in annual expenses (taxes, insurance, maintenance, management): net income = $16,000. Net yield = ($16,000 ÷ $320,000) = 5%.
This is essentially the same formula as cap rate when you use the purchase price as the denominator. Net yield / cap rate removes financing from the picture and tells you what the property returns on an unleveraged basis — useful for comparing deals regardless of how you plan to finance them.
Cash-on-cash: the investor's number
Cash-on-cash return adds financing to the picture. If you put $80,000 down (25%) and your mortgage costs $1,400 per month, monthly cash flow is $2,200 − $1,400 − $867 in operating expenses = −$67. Or if expenses are lower, say $500/month cash flow: ($6,000 ÷ $80,000) = 7.5% cash-on-cash.
Cash-on-cash is the most actionable number for a leveraged investor because it measures the return on the cash you actually put in. The three metrics work together: gross yield for screening, net yield / cap rate for comparing unlevered deals, cash-on-cash for your specific financing scenario.
Frequently asked questions
Which metric should I use to compare properties?
Use gross yield for quick screening across many listings. Use net yield (or cap rate) to compare unlevered returns on shortlisted properties. Use cash-on-cash once you have your financing terms to see the actual return on your invested capital.
Is net yield the same as cap rate?
Functionally yes when both use the purchase price as the denominator. Cap rate traditionally uses market value, which equals purchase price at the time you buy. They diverge over time as values change while your purchase price stays fixed.
What is a good net yield for a rental?
In high-appreciation coastal markets, 3–5% net yields are common. In Midwest and Sun Belt cash-flow markets, 6–9% is achievable. As a rule of thumb, your net yield should exceed your mortgage rate to maintain positive leverage.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.