Gross yield, net yield and total return explained with a simple worked example you can adapt to any property.
Why measure returns properly
Headline rents can be misleading. To compare properties fairly — or to compare property with other investments — you need to account for all costs and the total amount you invested.
Gross rental yield
Gross yield is the simplest measure:
Gross yield = (Annual rent ÷ Purchase price) × 100
It is useful for quick comparisons, but it ignores costs.
Net rental yield
Net yield subtracts running costs and uses your total investment, including purchase costs:
Net yield = (Annual rent − Annual costs) ÷ Total investment × 100
Annual costs include maintenance, property tax, insurance, repairs and an allowance for vacancy. Total investment includes stamp duty, registration, legal fees and any furnishing.
A worked example
The figures below are illustrative only.
| Item | Amount |
|---|---|
| Purchase price | ₹60,00,000 |
| Stamp duty, registration & legal | ₹4,50,000 |
| Furnishing | ₹1,50,000 |
| Total investment | ₹66,00,000 |
| Monthly rent | ₹20,000 |
| Annual rent | ₹2,40,000 |
| Annual costs (maintenance, tax, repairs, one month vacancy) | ₹56,000 |
| Gross yield (on price) | 4.0% |
| Net yield (on total investment) | 2.8% |
Total return includes appreciation
Rental income is only one part of the return. If the property's value rises over time, total return = net rental income + capital appreciation. Appreciation is never guaranteed, so base decisions on conservative assumptions and on the fundamentals of the location.
If you use a home loan, interest costs and tax benefits change the calculation. Speak to a qualified financial adviser for personalised advice.
Putting it into practice
Use the same method for every property you consider and you will quickly see which offers better value. Read residential vs commercial investment or ask our team to share rental comparables for a specific area.
