Gross rental yield

Annual rent divided by price, before any cost is deducted. The figure quoted on almost every property listing aimed at investors.

Example

Rent of 24,000 on a price of 300,000 is a gross rental yield of 8.00%, against a net figure of 4.264% once six deductions are taken out.

Important

Nobody ever receives it. It is most flattering exactly where the underlying economics are worst, because a high gross yield usually means a low price and a low price usually means something.

Related terms

• Net rental yield — Net operating income divided by price - rent after vacancy, management, maintenance, insurance, local property tax and any service charge, but before financing.
• Vacancy rate — The share of potential rent lost to periods when a property stands empty, usually combined with an allowance for arrears.
• Net operating income — Rent or trading income after every cost of running the asset except financing - management, maintenance, insurance, tax and an allowance for periods standing empty.

Lessons that explain it

• Gross yield is not a yield — Rent divided by price is the number every listing quotes and no owner receives. Take the five deductions out and Property P's 8.00% becomes 4.264% - and the two halves of the return turn out to be far less connected than they sound. (12 min)
• Appraising one property: the numbers, the condition, the tenant and the exit — Seven checks on one specific building. The two that decide most outcomes - the deduction list and whether the income covers the borrowing - are the two that never appear in a listing. (14 min)

All 578 terms in the Investing glossary