Gross yield on a rental property, explained
Gross yield is annual gross rent divided by the purchase price, expressed as a percentage. Because it ignores vacancy, taxes, insurance, management, and maintenance, it overstates the actual return. It works best as a quick screen to compare markets or filter a large set of listings, not as a stand-alone return metric.
The gross yield formula
Gross yield = (Annual gross rent ÷ Purchase price) × 100
Annual gross rent is all units at full occupancy at the rent they charge, before vacancy or any expense deduction. No management fee, no taxes, no repairs, just top-line rent over the purchase price.
A property that rents for $2,200 per month, purchased for $290,000:
Annual rent = $2,200 × 12 = $26,400
Gross yield = $26,400 ÷ $290,000 × 100 = 9.1%
That is the ceiling on returns, not the return itself.
Why gross yield and cap rate diverge
Cap rate starts where gross yield stops: it deducts operating expenses before dividing by value. The gap between the two numbers is the property’s operating expense ratio.
Using the same property:
| Line item | Annual figure |
|---|---|
| Annual gross rent | $26,400 |
| Vacancy allowance (6%) | −$1,584 |
| Effective gross income | $24,816 |
| Property taxes | −$3,100 |
| Insurance | −$1,100 |
| Property management (9% of EGI) | −$2,233 |
| Maintenance and repairs | −$1,800 |
| Total operating expenses | −$8,233 |
| Net operating income | $16,583 |
| Cap rate ($16,583 ÷ $290,000) | 5.7% |
Gross yield: 9.1%. Cap rate: 5.7%. The 3.4-point spread is the cost of operating the property. That spread widens in high-tax markets and narrows in low-expense scenarios, but it rarely closes to zero.
When gross yield is the right tool
Gross yield earns its place in rapid triage across a large number of properties, comparing two markets where you expect expense ratios to be similar, or as a rough check on whether a property is even in the ballpark before you build a full model.
The 1% rule is gross yield in monthly form. A property that passes the 1% rule ($2,900/month on a $290,000 property) carries a gross yield of about 12% — enough cushion to absorb a full expense load and still cash-flow in most markets.
Where gross yield misleads: comparing properties across markets with very different tax rates, insurance costs, or management conditions. A 9% gross yield in a 2% property-tax state produces a different outcome than a 9% gross yield in a 0.6% property-tax state — the cap rates diverge sharply even though the headline number looks identical.
For any property you take seriously past an initial screen, build the full NOI and check the cap rate. That is the number you actually underwrite to.
Frequently asked questions
What is a good gross yield for a rental property?
It depends on the expense load, but roughly 8% gross yield is the line where realistic operating costs still leave you cash-flow positive in most markets. Below 6%, the math gets tight unless the area has unusually low property taxes and maintenance, or you are betting on appreciation.
Can gross yield and cap rate ever be close to the same number?
Only when operating expenses are very low relative to rent, which is rare in practice. On a typical single-family rental with an expense ratio of 35–45%, gross yield will run well above the cap rate on the same property. A property with an 8% gross yield usually lands around 4–5% cap rate after expenses.
Does gross yield use market rent or actual rent?
Both versions exist. Using current in-place rent gives you the current gross yield; using estimated market rent gives you the forward or stabilized gross yield. Disclose which one you are using — a below-market tenancy can make in-place gross yield look worse than the stabilized picture, and vice versa.
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