Work out gross and net rental yield on a property from its price, monthly rent and annual running costs.
Gross rental yield is annual rent divided by property value, expressed as a percentage. It is the figure quoted in almost every listing and conversation, and it consistently overstates the return, because it ignores every cost of actually owning and letting the property. Net yield subtracts those costs first: property tax, maintenance and society charges, insurance, letting or management fees, repairs, and an allowance for vacancy between tenants.
The gap between the two is usually substantial, and vacancy is the item most often left out entirely. A property empty for one month in twelve has lost roughly eight per cent of its annual rent before any other cost. Two further points matter for judging a property as an investment. Yield says nothing about capital appreciation, which in many Indian cities has historically been the larger part of the total return — which is also why yields there look low against markets where prices are closer to rents. And if there is a loan, the honest comparison is net yield against the loan interest rate, since a yield below the borrowing cost means the rent is not covering the finance.
Gross yield is annual rent divided by property value. Net yield subtracts running costs first — tax, maintenance, insurance, management fees, repairs and vacancy. Net is the figure that reflects what you actually keep.
Because property prices are high relative to rents in most major cities. Investors have historically looked to capital appreciation for the larger share of total return, which keeps prices elevated relative to what tenants pay.
It depends on local demand, but even one empty month in twelve removes roughly eight per cent of annual rent. Leaving vacancy out entirely is one of the most common reasons a projected yield fails to materialise.
Not necessarily. Unusually high yields often come with weaker capital growth, higher tenant turnover or locations with more risk. Total return combines yield and appreciation, and yield alone tells only part of it.