Rental Yield Calculator

How to use this calculator

1. Enter the Property price and the Monthly rent you expect to collect.
2. Set Vacancy as the percentage of the year the unit sits empty, and Operating costs per year (tax, insurance, repairs, management).
3. Add the Cash invested (down payment & costs) (down payment and closing costs), the Mortgage rate and the Loan term.
4. Compare Net yield (cap rate), Monthly cash flow and Cash-on-cash return across properties.

Gross yield, net yield and cash-on-cash return

Investors use three different return figures, and they answer different questions. Gross yield is a quick screen that ignores costs. Net yield, also called the capitalization (cap) rate, measures the property itself and ignores how you finance it. Cash-on-cash return measures what your own money earns after the mortgage is paid.

Net yield = (12 · rent · (1 − vacancy) − costs) ÷ price

• rent = monthly rent; vacancy = share of the year without a paying tenant
• costs = yearly operating costs: property tax, insurance, repairs, management
• Gross yield = 12 · rent ÷ price
• Cash flow = net operating income − yearly mortgage payments
• Cash-on-cash return = cash flow ÷ cash invested

The calculator treats the loan as the price minus the cash you invest, repaid as a standard fixed-rate loan over the term you enter.

Example: a $300,000 rental at $2,000 a month

With the default inputs (5% vacancy, $5,000 yearly costs, $75,000 cash invested, 6.5% mortgage over 30 years) the gross yield is 8.00%. After vacancy and costs, net operating income is $17,800 a year, a net yield of 5.93%.

The $225,000 loan costs about $17,066 a year, so cash flow is only about $61 a month and cash-on-cash return is 0.98%. The property looks fine on yield but barely pays for itself once financed.

How sensitive the result is

Small changes in assumptions move the answer a lot. Raising vacancy from 5% to 10% cuts net yield to 5.53% and turns cash flow negative, about −$39 a month. If rent were $2,400 instead, net yield rises to 7.45%, cash flow to about $441 a month and cash-on-cash return to 7.06%.

Rent and vacancy are estimates, so test a pessimistic case before deciding. A deal that only works at zero vacancy is fragile.

How to use the numbers to decide

Use gross yield to shortlist, net yield to compare properties fairly, and cash-on-cash return to judge your financing. If net yield is below your mortgage rate, borrowing makes cash flow thinner; that is what happens in the example above (5.93% against 6.5%).

Compare the cash-on-cash return with simpler alternatives such as a savings account or index fund, using the ROI calculator. Rental income also needs time and effort, so the premium over those options should be real. To see how the mortgage itself behaves, try the mortgage calculator.

Common mistakes

• Using the asking rent of a renovated unit for one that needs work.
• Leaving out repairs and capital expenses such as a roof or boiler; budget a yearly amount even if nothing breaks this year.
• Ignoring vacancy between tenants and the cost of finding a new one.
• Counting the gross yield as profit.
• Forgetting closing costs and renovation in the cash you invest, which flatters cash-on-cash return.

Assumptions and limits

The calculator uses constant rent, costs and rate for a fixed-rate, fully amortizing loan. It does not include income tax, depreciation, rent growth, price appreciation, selling costs, a variable rate or the principal you repay (which builds equity but is not cash flow).

Treat results as a screening estimate. Check local landlord rules and tax treatment with a qualified adviser before buying.

Frequently asked questions