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Calculate gross rental yield by dividing annual scheduled rent by the property’s purchase price and multiplying by 100. For a more useful investment picture, estimate net operating income (NOI) after vacancy losses and operating expenses, then subtract mortgage payments to see pre-tax cash flow. These are different measures: a property can show a high gross yield and still produce negative cash flow.
What rental yield, NOI, and cash flow measure
Use the same period—usually one year—and clearly state the cost basis and expenses behind each figure. Gross yield is a quick rent-to-price comparison. Net operating yield accounts for operating expenses. NOI measures operating income before financing. Cash flow estimates the money left after debt payments and any separately budgeted reserves.
| Measure | Calculation | What it tells you |
|---|---|---|
| Gross rental yield | Annual scheduled rent ÷ purchase price (or stated current property value) × 100 | A rent-to-value ratio before vacancy, costs, financing, or tax. |
| Net operating yield | (Effective rental income − operating expenses) ÷ stated property cost basis × 100 | Operating return after the expenses you include. State whether the denominator is purchase price, current value, or total acquisition cost. |
| Net operating income (NOI) | Effective rental income − operating expenses | Income from operating the property before mortgage principal and interest. |
| Pre-tax cash flow | NOI − mortgage debt service − separately budgeted cash reserves or other cash outlays | Estimated cash remaining after financing and the outflows you identify. |
Net yield has no single universal convention: investors may use different denominators and expense sets. Disclose both so another property or estimate can be compared fairly. The California Board of Equalization’s appraisal lesson separates operating income, vacancy and collection losses, expenses, debt service, and equity income; the City of Guelph investor guide likewise builds from scheduled rent to effective income, operating expenses, NOI, and cash flow. California Board of Equalization appraisal lesson and City of Guelph Investor Guide.
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- Choose the price basis. Use purchase price for a yield based on the acquisition, or current property value for a yield based on today’s value. Label the choice; the result changes when the denominator changes.
- Annualize scheduled rent. Multiply monthly rent by 12, or weekly rent by 52. Use the rent expected under the lease, before allowing for vacancies or non-payment.
- Divide and convert to a percentage. Divide annual scheduled rent by the chosen price basis, then multiply by 100.
For example, with hypothetical annual scheduled rent of 24,000 and a purchase price of 400,000 in the same currency, gross yield is 24,000 ÷ 400,000 × 100 = 6%. This arithmetic illustration is not a market benchmark and does not account for expenses or financing.
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How to calculate net operating yield and NOI
Estimate effective rental income
Begin with scheduled rent and subtract a vacancy and non-payment or collection-loss allowance. Add other reliable property income separately if applicable. Assuming every rental period is occupied and every payment arrives on time can overstate the income available to cover costs.
Subtract recurring operating expenses
Deduct costs required to operate and lease the property. Depending on the property and location, these may include local property taxes or rates, insurance, landlord-paid utilities, management fees, repairs and maintenance, leasing costs, and service or association fees. State which costs you included. Keep unusual or one-time improvements distinct from recurring operating expenses; their tax treatment is a separate question.
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Calculate NOI, then net yield
Subtract operating expenses from effective rental income to get NOI. In the cited appraisal and investor-guide methods, NOI excludes mortgage principal and interest. To calculate net operating yield, divide NOI by your declared cost basis and multiply by 100. If the denominator is total acquisition cost rather than purchase price alone, specify what acquisition costs it includes.
How to estimate investment-property cash flow
Subtract scheduled mortgage debt service—both principal and interest—from NOI to estimate pre-tax cash flow. If you plan to set aside money for future capital replacements, show that reserve as an additional cash outflow after NOI rather than blending it into the yield without explanation.
Principal repayment reduces cash available now but also reduces the loan balance. Keep those effects distinct: cash flow describes money coming in and going out over a period, while loan repayment can also build equity. Cash flow is not the same as taxable profit, because tax rules may classify costs differently.
Worked calculation with hypothetical figures
The following example uses invented figures solely to demonstrate the arithmetic. Amounts are in one unspecified currency, and the example is not a local market estimate.
| Input or result | Hypothetical annual amount |
|---|---|
| Purchase price | 300,000 |
| Scheduled rent: 2,000 per month × 12 | 24,000 |
| Vacancy and collection-loss allowance | 1,200 |
| Effective rental income: 24,000 − 1,200 | 22,800 |
| Property taxes or rates | 2,400 |
| Insurance | 900 |
| Repairs and maintenance | 1,500 |
| Management and leasing | 1,800 |
| Landlord-paid utilities and service fees | 1,200 |
| Total operating expenses | 7,800 |
| NOI: 22,800 − 7,800 | 15,000 |
| Net operating yield on purchase price: 15,000 ÷ 300,000 × 100 | 5% |
| Annual mortgage principal-and-interest payments | 12,000 |
| Planned capital reserve | 1,000 |
| Pre-tax cash flow after debt service and reserve: 15,000 − 12,000 − 1,000 | 2,000 |
The example’s net yield uses purchase price as its denominator and excludes financing. The cash-flow figure subtracts annual debt service and the separately shown reserve. Changing the assumed vacancy, expenses, loan, or reserve would change the result.
How to compare properties fairly
Use identical periods, denominator conventions, and expense definitions for each candidate. Compare the underlying assumptions, not just the headline percentages.
- Scheduled rent and realistic effective rent after vacancy or collection losses.
- Recurring operating costs and any costs paid by the landlord rather than tenants.
- Purchase-price basis versus total acquisition cost or current value.
- Financing amount, interest rate, amortization, and resulting principal-and-interest payments.
- Cash flow after debt service and any consistently budgeted reserves.
A higher gross yield can coincide with lower net yield or negative cash flow after financing. Stress-test rent, vacancy, repairs, insurance, property taxes or rates, and loan terms; these inputs vary by property, market, ownership, and time. The available sources establish no universal threshold for a “good” yield.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Keep tax calculations separate from cash-flow calculations
Taxable rental profit and cash flow are not interchangeable. Tax rules depend on jurisdiction, ownership structure, and property type, and the costs allowed for tax purposes may not match the costs used in an operating-yield estimate. Check current local rules or obtain advice suited to your circumstances.
UK-specific note
For UK landlords, HMRC’s guidance describes allowable day-to-day property expenses, record-keeping, and rental-profit calculations. For individual residential landlords, Income Tax relief for finance costs has been restricted to the basic rate since 6 April 2020; treatment can differ for companies and other circumstances. Under the cash basis, receipts and expenses are generally recognized when money is received or paid, so accounting-basis rules can affect when profit is reported. See HMRC: Work out your rental income when you let property and HMRC Property Income Manual PIM1092.
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HMRC’s 2026 statistics report £34.75 billion in total allowable expenses declared for 2024–25 and £12.82 billion in residential finance costs declared for that year. These are aggregate amounts from unincorporated landlords’ Self Assessment data, not typical expenses or financing costs for an individual property. See HMRC Property rental income statistics: 2026.
Optional: calculate cash-on-cash return
Cash-on-cash return compares annual cash flow with the cash initially invested: annual cash flow ÷ initial cash invested × 100. Define exactly what initial investment includes—for example, the down payment and acquisition costs—and use a consistent cash-flow figure. It is an investor-level return measure, not rental yield.
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