Gross yield and net yield
Gross rental yield is scheduled annual rent divided by all-in purchase cost. Net yield applies occupancy and then subtracts annual holding costs. Occupancy is a simple stand-in for vacancy and turnover.
Scheduled annual rent = monthly rent × 12
Gross yield = scheduled annual rent ÷ purchase cost
Annual net income = scheduled annual rent × occupancy − annual costs
Net yield = annual net income ÷ purchase cost
Simple payback years = purchase cost ÷ annual net income
Gross yield = scheduled annual rent ÷ purchase cost
Annual net income = scheduled annual rent × occupancy − annual costs
Net yield = annual net income ÷ purchase cost
Simple payback years = purchase cost ÷ annual net income
Example
A $400,000 all-in cost and $2,000 monthly rent is a 6% gross yield. At 90% occupancy and $4,800 of annual costs, annual net income is $16,800, net yield is 4.2%, and simple payback is about 23.81 years.
What this yield leaves out
The result is an unlevered property yield. Mortgage interest, principal, price change, selling costs, income tax, and the time value of money are outside this page. Do not paste a full mortgage payment into annual costs if that payment includes principal.