HOW TO CALCULATE RENTAL YIELD: GROSS vs NET

How to calculate rental yield is one of the first questions every property investor asks, and one of the easiest to get wrong. Gross yield and net yield often tell completely different stories about the same property. This guide walks through both calculations step by step. It shows exactly where the numbers can mislead you, and gives you a formula you can apply to your own numbers straight away.

30-Second Read

• Yield measures rental income as a percentage of a property’s value. It’s a simple way to compare how hard different properties work relative to their price.
• Gross yield uses rental income against the purchase price alone. It’s quick to calculate, but it ignores every real cost of ownership.
• Net yield subtracts operating expenses from rental income. It’s divided by the full cost of acquiring the property, including transaction costs — a far more realistic number.
• The gap between gross and net yield can be large. A property showing a reasonable gross yield can look very different once real costs are factored in.
• Yield is a useful screening tool. It isn’t the whole picture, though — see our guide on yield vs cash flow for what yield doesn’t tell you.

We work through both formulas with a full worked example. There’s a second example for comparison, plus a checklist for your own numbers.

 

What Is Rental Yield?

Rental yield measures how much income a property generates each year, relative to its value. Two common ways to describe it:

“Yield is the percentage of rental income compared to the purchase price.”

“Yield is a measure of how much cash an asset produces each year as a percentage of that asset’s value.”

Both descriptions point at the same idea. Yield lets you compare properties of different prices on a level footing, rather than just comparing raw weekly rent.

Gross Yield: The Quick Calculation

Gross yield is the simpler of the two calculations, and the one most listings and calculators quote by default.

Gross rental yield = (annual rental income ÷ property value) x 100

Here’s a worked example. Say you have a rental property worth $520,000, renting for $520 a week.

Step 1: Work out annual rental income.

$520 x 52 weeks = $27,040

Step 2: Divide by the property’s value.

$27,040 ÷ $520,000 = 0.052

Step 3: Multiply by 100 to get a percentage.

0.052 x 100 = 5.2%

That’s the Gross Yield: this property yields 5.2% per year, before any expenses.

Gross yield is useful for a quick, first-pass comparison between properties. It has one significant limitation, though: it doesn’t include a single dollar of running costs. Two properties can show the same gross yield and perform completely differently once real expenses come into the picture.

Net Yield: The More Realistic Calculation

Net yield accounts for the actual cost of owning the property, not just the purchase price. To calculate it properly, you need to know (or estimate) two categories of cost:

• Purchasing and transaction costs — legal costs, building inspections, council reports, bank and loan fees, and similar one-off costs at purchase.
• Annual operating costs — vacancy costs (lost rent and advertising), repairs and maintenance, property management fees, insurance, body corporate levies (if applicable), rates, accounting, and water bills.

Here’s the formula:

Net rental yield = (annual rental income – annual expenses) ÷ (total property cost) x 100

Working Through the Same Property

Let’s use the same $520,000 property, renting for $520 a week, with annual rental income of $27,040.

Step 1: Total the annual operating expenses. Say these come to $15,000 of interest, $1,600 of insurance, $2,300 of property management fees. Add $4,500 for rates, accounting, repairs and incidentals.

$15,000 + $1,600 + $2,300 + $4,500 = $23,400

Step 2: Subtract annual expenses from annual rental income.

$27,040 – $23,400 = $3,640

Step 3: Work out the total property cost. This means adding transaction costs to the purchase price — not subtracting them. These are costs on top of what you paid, not a discount off it. Say transaction costs come to $2,000 for conveyancing, $500 for a valuation, and $1,500 for LTC setup, reports and incidentals. The bank contributes $500 towards legal fees.

$2,000 + $500 + $1,500 – $500 (bank contribution) = $3,500 net transaction costs

$520,000 + $3,500 = $523,500 total property cost

Step 4: Divide net rental income by total property cost, and multiply by 100.

$3,640 ÷ $523,500 x 100 = 0.7%

That property, which looked reasonable at 5.2% gross yield, looks a lot less attractive once you calculate a realistic net yield.

A Second Example, for Comparison

Not every property tells the same story. Take a property worth $650,000, renting for $620 a week.

Annual rental income: $620 x 52 = $32,240

Gross yield: $32,240 ÷ $650,000 x 100 = 5.0%

A slightly lower gross yield than the first example. But say this property carries a smaller mortgage, lower body corporate fees, and fewer transaction costs relative to its value. Its net yield could easily come out higher than the first property’s 0.7%, despite the lower gross figure. This is exactly why gross yield alone can be misleading. It doesn’t capture the cost structure that actually determines net performance.

When the Numbers Look Weak

If your net yield calculation comes out low, that doesn’t automatically rule the property out — but it’s worth understanding why before you proceed. A low net yield often points toward a property better suited to a growth-focused, negatively-geared strategy, rather than an income-focused one. See our article on positive gearing vs negative gearing for that trade-off in more depth.

Yield Isn’t the Whole Picture

Even a carefully calculated net yield doesn’t tell you what actually lands in your bank account each month. That depends on your specific debt structure, your deposit size, and your tax position. Yield, on its own, captures none of that. Our guide to rental property yield vs cash flow works through why a property with a good yield can still run negative cash flow. It covers what to check before you buy.

Checklist for Your Own Calculation

• ✅ Calculate gross yield first, as a quick screening tool
• ✅ Gather your actual (or realistically estimated) annual operating expenses before calculating net yield
• ✅ Add transaction costs to the purchase price, not subtract them, when working out total property cost
• ✅ Compare net yield, not gross yield, when weighing up two different properties
• ✅ Check the property’s likely cash flow position too, not just its yield
• ✅ Revisit your numbers against current interest rates before relying on an old calculation

Common Questions

What’s a “good” rental yield in New Zealand? It varies significantly by location, property type, and strategy. A lower-yield property in a high-growth area can suit a different strategy than a higher-yield property bought mainly for income. There’s no single universal benchmark.

Why is my net yield so much lower than my gross yield? Because net yield includes every real cost of ownership — interest, rates, insurance, management fees and more. Gross yield includes none of them. A big gap between the two usually means the property carries significant running costs relative to its rental income.

Should I add or subtract transaction costs when working out total property cost? Add them. Conveyancing, valuations and similar purchase costs sit on top of the purchase price. They increase what the property actually cost you to acquire, not decrease it.

Does a high yield mean a property is a good investment? Not on its own. Yield doesn’t account for your financing costs, your tax position, or your cash flow. See our guide on yield vs cash flow for the fuller picture.

Summary

How to calculate rental yield comes down to two formulas: gross yield (rental income over purchase price) for a quick first look, and net yield (rental income minus expenses, over total property cost) for a realistic one. The two numbers can tell very different stories about the same property. A solid-looking gross yield can collapse into a much thinner net yield, once real costs are counted properly. Calculate both before comparing properties. And remember: even a strong net yield doesn’t guarantee positive cash flow, once your specific financing and tax position are factored in.

Talk to EpsomTax.com About Your Numbers

Yield calculations are only as good as the assumptions behind them — and a property that looks strong on a rough gross yield calculation can tell a very different story once every real cost is accounted for.

Contact EpsomTax.com to work through the real numbers on your next potential purchase. We work with New Zealand property investors every day. We can help you see past the headline yield figure to what a property will actually do for you.