📈 Rental Yield Calculator

Gross yield, net yield, and why net yield is the cap rate

Both figures divide rent by the purchase price. The net one subtracts operating costs first, which makes it the capitalisation rate as an appraiser would use it:

gross rent yield = annual rent / price × 100
NOI              = annual rent - annual operating expenses
net yield (cap rate) = NOI / price × 100

The defaults - $300,000, $24,000 rent, $6,000 expenses - give 8.00% gross, $18,000 of net operating income and a 6.00% cap rate. It is only a true cap rate if that box holds operating costs alone - tax, insurance, maintenance, management, vacancy - with no mortgage payment among them.

Cap rate is not what lands in your account

• Cash-on-cash return is the one to run next. It is annual cash flow after debt service divided by cash invested. Put 25% down with $9,000 of closing costs and you have $84,000 in; a $225,000 loan at 7% over 30 years costs $17,964 a year, so $18,000 of NOI leaves about $36 - a 0.04% return.
• $6,000 of expenses is optimistic. That is 25% of rent. The common rule of thumb puts operating costs nearer 40-50%, and at $12,000 the cap rate halves to 4.00%.
• Vacancy is an expense. One empty month costs $2,000 here - more than many owners budget for repairs all year.

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