Gross rental yield
Gross rental yield is a simple screening ratio: annual rent divided by property purchase value. A $500,000 property producing $35,000 of annual rent has a 7% gross rental yield before operating expenses. The ratio is easy to compare across properties, but it ignores the costs required to earn that rent.
Net rental yield
Net rental yield improves the picture by subtracting selected annual operating expenses before dividing by property value. If the same property has $8,000 of annual service charges and other modeled operating expenses, net income is $27,000 and the simplified net rental yield is 5.4%.
The usefulness of the result depends on which expenses are actually included. Omitting vacancy, maintenance, insurance, property tax, management, or association costs can materially overstate income.
ROI can use a different denominator
A leveraged investor may care about return on the cash actually invested rather than property value. A complete ROI analysis can include the down payment, financing costs, principal reduction, appreciation or depreciation, acquisition costs, improvements, sale costs, and taxes. That is a different question from rental yield.
Why PayCalc labels the metric as rental yield
PayCalc's rental mode deliberately reports gross and net rental yield rather than presenting the simplified ratio as a complete ROI. The calculator uses purchase value, annual rent, service charges per area unit, and other annual expenses entered by the user. It does not automatically model financing or appreciation.
Vacancy and maintenance can materially change net yield
Annual rent is often a scheduled or expected amount, not guaranteed collected income. Vacancy, tenant turnover, repairs, leasing costs, and unexpected maintenance can reduce actual cash received. If those costs are not represented in the model, the resulting “net” yield is only net of the expenses that were actually entered.
For comparison across properties, use a consistent expense policy. If one property includes an allowance for vacancy and maintenance while another does not, the two net-yield percentages are not directly comparable even if the formula is identical.
Official references
These sources are provided so you can verify the rules or concepts summarized above. PayCalc uses primary government sources where they are available.