Real Estate Tax Calc
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.
A side-by-side worked example
Put the three metrics on one property to see how they diverge. You buy a house for $300,000, put $75,000 down (25%), and finance $225,000 at 7% (about $18,000 of annual interest and roughly $17,970 of total principal-and-interest). Gross annual rent is $27,000; operating expenses (taxes, insurance, maintenance, management, vacancy reserve) total $9,000, so net operating income is $18,000.
Gross yield = $27,000 ÷ $300,000 = 9.0%. Net yield / cap rate = $18,000 ÷ $300,000 = 6.0%. Cash-on-cash = ($18,000 NOI − $17,970 debt service) ÷ $75,000 invested ≈ 0.04% — essentially break-even. The same property looks like a 9% deal, a 6% deal, or a break-even deal depending on which number you quote, which is exactly why sellers and listing sites tend to advertise gross yield.
What net yield still leaves out
Net yield (cap rate) is a big improvement over gross yield because it accounts for operating costs, but it is not the whole story. It excludes debt service entirely, so two investors buying the identical property at the same price show the same net yield even though one paid cash and the other borrowed 80%. It also excludes capital expenditures — a new roof, HVAC, or turnover renovation — which are real cash outlays that never appear in a simple net-yield calculation.
For a truer operating picture, deduct a capital-reserve allowance (often 5–10% of rent) from NOI before computing net yield, and remember that the figure is pre-tax and pre-financing. It answers "what does this asset earn on its own," not "what will I earn after my loan and my tax bracket."
Yield on cost: the value-add metric
Yield on cost divides stabilized NOI by your total invested cost — purchase price plus renovation — rather than by market value. If you buy a distressed duplex for $220,000, spend $40,000 rehabbing it, and it then produces $23,400 of NOI, your yield on cost is $23,400 ÷ $260,000 = 9.0%. If similar stabilized duplexes trade at a 6% cap rate, the market would value yours near $390,000 — the roughly 3-point spread between your yield on cost and the market cap rate is your value-add profit.
Yield on cost is the metric BRRRR and value-add investors watch, because it isolates whether the improvement dollars earned a better return than simply buying a turnkey property at market yield.
After-tax yield: where the tax code enters
None of the three headline metrics reflect taxes, yet taxes are often the difference between two otherwise identical deals. Depreciation can shelter part of the rental income, lowering your effective tax and raising your after-tax yield above the pre-tax number; conversely, a high-income investor who cannot use passive losses, or who faces the 3.8% net investment income tax, keeps less than the pre-tax yield implies.
A rough way to compare deals on an even footing: estimate taxable income (NOI minus mortgage interest minus depreciation), apply your marginal rate, and subtract that tax from cash flow before dividing by invested capital. The result — after-tax cash-on-cash — is the number that actually lands in your pocket.
Common mistakes comparing yields
The classic error is comparing a gross yield in one market to a net yield in another, or comparing gross yields across markets with very different property-tax and insurance costs. A 10% gross yield in a high-tax, high-vacancy metro can net less than a 7% gross yield in a low-cost, stable one. Always compare like to like — the same metric, computed the same way, with the same expense assumptions.
A second mistake is using asking rent instead of achievable rent, or omitting vacancy and management even when you self-manage (your time has a cost). Padding the numerator or shrinking the denominator inflates every yield metric and hides a marginal deal.
Gross rent multiplier: the inverse of gross yield
You will often see properties quoted by their gross rent multiplier (GRM) — purchase price divided by annual gross rent. It is simply the inverse of gross yield: a 9% gross yield equals a GRM of about 11.1 ($300,000 ÷ $27,000). Lower GRMs (and higher gross yields) generally signal cheaper cash flow relative to price, but the same caveat applies — GRM ignores every expense, so a low GRM in a high-tax market can be worse than a higher GRM in a low-cost one.
GRM is useful for the same job as gross yield: rapid screening across many listings before you have expense data. Treat it as a first filter that tells you which properties are worth pulling real operating numbers on, never as the figure you make an offer against.
The 1% rule and why it is only a screen
The popular 1% rule — monthly rent should equal at least 1% of purchase price — is really a gross-yield shortcut: 1% monthly is a 12% gross yield. It became popular because you can check it in your head, but it says nothing about property taxes, insurance, HOA dues, or financing, all of which vary enormously by location. A property that clears the 1% rule in a high-tax state can still lose money after expenses and debt service.
Use rules of thumb like the 1% rule and GRM to decide what to investigate, then move to net yield and cash-on-cash for the decision itself. The discipline is always the same: screen with gross metrics, decide with net and after-financing metrics.
Putting the metrics in order
A disciplined workflow uses all three metrics in sequence. Start with gross yield or GRM to filter a long list of candidates quickly. For the survivors, compute net yield (cap rate) using realistic operating expenses, including a capital reserve, to compare properties on an unleveraged basis. Finally, run cash-on-cash — and ideally after-tax cash-on-cash — on your top choices using your actual financing terms.
Each metric answers a narrower, more decision-relevant question than the last. Quoting only the flattering one — usually gross yield — is how marginal deals get sold; running all three is how you avoid buying them.
Yield is not total return: appreciation and loan paydown
Every yield metric on this page measures income relative to price or capital — and income is only one of the ways a rental builds wealth. A property with a mediocre 4% net yield in an appreciating coastal market can out-earn a 9% net-yield property in a flat one once you add appreciation (the property gaining value) and principal paydown (each mortgage payment converting debt into equity). Neither of those shows up in gross yield, net yield, or even cash-on-cash return, all of which look only at the current year.
The metric that captures everything is total return (or internal rate of return, IRR), which stacks cash flow, appreciation, loan paydown, and tax effects over the full hold and expresses them as a single annualized figure. Use the yield metrics to screen and compare operating performance, but make the final buy-or-hold decision on projected total return — otherwise you will systematically overvalue high-yield, low-growth markets and undervalue the reverse.
How interest rates reshape all three metrics
Gross and net yield are computed before financing, so a change in mortgage rates leaves them untouched — a property's 6% cap rate is the same whether loans cost 4% or 8%. Cash-on-cash return, by contrast, swings hard with rates, because debt service sits directly in its numerator. The break-even example earlier (0.04% cash-on-cash at 7%) would show meaningfully positive cash flow at a 5% rate and deep negative cash flow at 9% on the identical purchase.
This is why "positive leverage" — borrowing at a rate below the property's cap rate — is the pivot point. When your mortgage rate is below the cap rate, financing lifts cash-on-cash above the unlevered yield; when it climbs above the cap rate, leverage drags cash-on-cash below it. In a high-rate environment, many properties that still screen well on gross and net yield no longer clear on cash-on-cash, which is exactly why all three metrics have to travel together.
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.
What is a good gross yield for a rental?
It depends heavily on the market. High-cost coastal metros often show 4–6% gross yields, while Midwest and Sun Belt cash-flow markets can reach 10% or more. Because gross yield ignores every expense, a high figure in a high-tax, high-insurance market can net less than a lower figure elsewhere — always confirm with net yield before judging a deal.
Why do listing sites and sellers usually quote gross yield?
Because it is the largest and most flattering of the three numbers. Gross yield ignores taxes, insurance, maintenance, vacancy, and financing, so the same property can look like a 9% deal on gross yield while being break-even on cash-on-cash. Treat an advertised gross yield as a starting point to investigate, never as the return you will actually earn.
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.
What is yield on cost and how is it different?
Yield on cost divides stabilized NOI by your total invested cost (purchase plus renovation) rather than by market value. Value-add investors compare it to the market cap rate — the spread between the two is the profit created by the improvements.
Does net yield account for my mortgage?
No. Net yield (cap rate) is calculated before debt service, so it is identical whether you pay cash or borrow 80%. Cash-on-cash return is the metric that folds in financing.
How do taxes change these yields?
The headline metrics are all pre-tax. Depreciation can raise your after-tax yield by sheltering income, while an inability to use passive losses or the 3.8% net investment income tax can lower it. Compute after-tax cash-on-cash to compare deals on an even basis.
What is the 1% rule?
A screening shortcut: monthly rent should be at least 1% of purchase price, which is equivalent to a 12% gross yield. It ignores taxes, insurance, and financing, so use it only to decide which properties deserve a full net-yield and cash-on-cash analysis.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.