What a rental property actually yields

Why gross yield misleads

The usual calculation is rent times twelve, divided by the price. It is useful for a quick comparison between two properties and useless for a decision, because it omits four things that appear straight away.

Vacancy

A property is not let from day one and is not let continuously. Weeks pass between tenants, sometimes with a refurbishment in between. Eight percent of the year is about a month and is a reasonable assumption for a city flat.

Tax

For an individual, statutory expenses are deducted and tax is paid on the remainder — effectively around nine percent of gross rent. For a company the regime is different.

Costs that never stop

Building fee, small repairs, property tax and the waste fee. Individually small, together they eat a noticeable share of the annual income.

The purchase costs

The amount invested is not the price of the property but the price plus tax, notary and commission. Yield is measured against what you put in, not against the asking price.

What counts as a good yield

There is no single number. Compare it with the alternative actually open to you — a deposit, bonds, another property — and look at net rather than gross. And remember the calculator prices in neither capital appreciation nor the risk of a bad tenant.

Frequently asked questions

What is a normal yield on a rental property?

It depends on the city, the neighbourhood and the type of property, and it moves with interest rates. The right benchmark is not an absolute figure but a comparison with your alternative, with net yield calculated the same way on both.

How is rental income taxed?

For an individual, statutory expenses are deducted and tax is due on the remainder — effectively around nine percent of gross rent. For a company both the regime and the rates differ.

Does the calculator include capital appreciation?

No. It measures the cash flow from rent only. Appreciation is a separate and far less certain calculation that should not be mixed into current yield.

Why are purchase costs part of the calculation?

Because the amount invested is the price plus tax, notary and commission. A yield measured on the asking price alone comes out around half a percentage point higher than it is.