Rental Yield

Rental yield measures how much annual income a property generates relative to its value, expressed as a percentage. It's the real estate equivalent of a dividend yield on a stock, showing the income return separate from any capital appreciation the property might also produce.

Yields vary enormously by market and property type. Major Indian metro residential yields often sit in the 2-3% range, reflecting how much faster property prices have risen relative to rents, while commercial property and many US rental markets show meaningfully higher yields. The Rental Property ROI Calculator factors in expenses to compute a more realistic net yield figure.

Gross Rental Yield (%) = (Annual Rent / Property Value) × 100

Net Rental Yield (%) = ((Annual Rent − Annual Expenses) / Property Value) × 100

A flat purchased for ₹80,00,000 rents for ₹18,000 per month, with annual maintenance and property tax totaling ₹36,000.

• Annual rent: ₹18,000 × 12 = ₹2,16,000
• Gross yield: ₹2,16,000 / ₹80,00,000 × 100 = 2.7%
• Net yield: (₹2,16,000 − ₹36,000) / ₹80,00,000 × 100 = 2.25%

That 2.25% net yield is well below what a fixed deposit might offer, illustrating why pure income return often isn't the main reason people buy residential property in high-price cities.

• Gross yield overstates real return by ignoring expenses. Always check net yield, which subtracts maintenance, taxes, and vacancy, for a realistic comparison against other investments.
• Low yield doesn't mean a bad investment. Rental yield only captures income, not capital appreciation, a property with a 2.5% yield but strong price growth can still deliver solid total returns.
• Yields are inversely related to property prices. As prices rise faster than rents, yield compresses, which is exactly what's happened across many major cities over the past decade.
• Commercial property typically yields more than residential. Higher yields on commercial real estate reflect different risk, tenant, and liquidity profiles compared to residential rentals.
• Vacancy periods materially affect realized yield. A property vacant for two months a year effectively loses about 17% of its potential annual rent, a real drag that gross yield calculations often ignore.