Gross yield, net yield, cap rate, cash-on-cash return, and monthly cash flow in one place. Enter your property details for a full rental investment analysis.
Rental yield and return metrics are the foundation of any investment property decision. They let you compare properties of different sizes, prices, and locations on a level footing. Understanding the difference between gross yield, net yield, cap rate, and cash-on-cash return is essential before committing to a purchase.
Gross rental yield is a quick headline figure: it is simply annual rent divided by the purchase price. It is useful for rapid comparisons but ignores all the costs of ownership. Net yield is more meaningful — it deducts all operating expenses (property tax, insurance, maintenance, management fees, vacancy allowance) before dividing by the property price. The difference between gross and net yield often surprises investors. A property with a 7% gross yield may only produce a 4.5% net yield once expenses are properly accounted for.
Cap rate (capitalisation rate) is calculated by dividing net operating income (NOI) by the property value. Unlike cash-on-cash, it ignores financing completely — it assumes you paid cash for the property. This makes it useful for comparing investments across markets regardless of interest rate environments. A higher cap rate generally signals higher return but also higher risk, potentially reflecting a less desirable location, older building, or management challenges. For residential properties in established markets, 5%–8% cap rates are typical. Above 8% warrants investigation into why the yield is elevated.
Cash-on-cash return is arguably the most practical metric for leveraged investors. It measures your actual annual cash flow (after all expenses AND mortgage payments) as a percentage of the cash you invested (your down payment). A $350,000 property with a 20% down payment requires $70,000 cash. If that property generates $5,600/year in net cash flow after the mortgage, the cash-on-cash return is 8%. Positive cash flow means the rent covers all costs and still leaves money over. Negative cash flow means you are topping up the investment each month.
There is no single answer, but here are typical benchmarks: a gross yield above 6% is generally considered solid in most markets. A cap rate above 5% is reasonable for residential property. A cash-on-cash return above 6% is strong, though finding this in competitive markets is increasingly difficult. The 1% rule (monthly rent should be at least 1% of purchase price) is a rough screening heuristic — it corresponds approximately to a 12% gross yield, which is rare in most major markets today. Focus on net yield and cash flow rather than gross yield, and always run the full numbers before buying.
Two expenses that new investors commonly underestimate are vacancy and management. A 5% vacancy allowance means the property sits empty for about 18 days per year on average. In practice, a single tenant change can mean 4–8 weeks of vacancy between leases. Property management (if you use an agent) typically costs 8%–12% of gross rent plus sometimes a letting fee. Self-managing saves money but costs time. Both should be factored into any serious rental yield analysis.