Gross rental yield
Gross yield compares annual contractual rent with the purchase price. It is useful for a quick screening but ignores vacancy, operating costs, borrowing, tax and purchase costs.
For a hypothetical £300,000 property renting for £1,650 a month, annual rent is £19,800 and gross yield is 6.6%.
Net rental yield
Net yield deducts property operating costs from rent before comparing the result with property value. Definitions vary, so always check what has been deducted. Our model shows operating cash flows separately so users can see the calculation.
If 95% occupancy reduces collected rent to £18,810 and management, service charge and repairs total £5,381, net operating income is £13,429. The resulting illustrative net yield is approximately 4.5% before mortgage payments and personal tax.
Cash-on-cash return
Cash-on-cash return focuses on the investor’s actual cash. Deduct mortgage payments and other annual cash costs, then divide the remaining annual cash flow by the deposit and other upfront cash invested.
It is possible for cash-on-cash return to be negative while IRR is positive. That can happen when the model assumes capital growth, a profitable future sale or mortgage principal repayment. The investment may build value while requiring annual cash contributions.
Which figure should you use?
- Gross yield for a very quick comparison of asking price and rent.
- Net yield to understand the property before financing.
- Cash-on-cash return to assess annual return on your contributed cash.
- IRR for the complete multi-year investment including sale.
No single measure captures affordability, risk and total return. Use the measures together and keep the underlying cash flows visible.
All figures above are hypothetical and rounded. They are not a representation of an actual property or achieved investment return.
Calculate all four measures