Rental Yield Explained — Gross, Net, Cap Rate & Cash-on-Cash
Four different metrics tell you how much a property earns — and they are easy to confuse. Here are the definitions, the formulas, and one worked example that runs through all of them.
Definitions & formulas
Gross yield
Annual rent ÷ property price × 100. Ignores all costs — quick but optimistic.
gross = annual_rent / price × 100Net yield
(Annual rent − annual operating costs) ÷ property price × 100. Costs include management, maintenance, insurance, property tax and building fees.
net = (annual_rent − costs) / price × 100Cap rate (capitalization rate)
Net operating income (NOI) ÷ property value × 100. NOI is rent minus operating costs, but before financing (mortgage) and tax. Used to compare properties independently of financing.
cap_rate = NOI / value × 100Cash-on-cash return
Annual pre-tax cash flow ÷ actual cash invested × 100. This is where the mortgage matters: the return on your own money, not on the full property price.
coc = annual_cash_flow / cash_invested × 100Worked example (illustrative)
A property priced 300,000, rent 1,500/month (18,000/year), operating costs 4,000/year. Bought with 25% down (75,000) plus 9,000 purchase costs — total cash invested 84,000. After mortgage interest, annual cash flow is 3,200.
| Metric | Calculation | Result |
|---|---|---|
| Gross yield | 18,000 / 300,000 | 6.0% |
| Net yield | (18,000 − 4,000) / 300,000 | 4.67% |
| Cap rate | 14,000 / 300,000 | 4.67% |
| Cash-on-cash | 3,200 / 84,000 | 3.81% |
Note: net yield and cap rate match here because we used the same costs and price = value. Cash-on-cash differs because it measures cash flow on your equity alone.
Frequently asked questions
What is the difference between gross and net yield?
Gross divides annual rent by price and ignores costs. Net subtracts operating costs first, so it is lower and more realistic.
How is cap rate different from net yield?
Cap rate uses current market value in the denominator and net operating income (NOI) in the numerator. When purchase price equals value, it matches net yield.
Why does cash-on-cash matter when there is a mortgage?
It measures the return on the cash you actually invested after mortgage payments, so leverage can push it well above the net yield on the full property.