Rental Yield Formula: Gross vs. Net and How to Apply It

Knowing how to correctly calculate rental yield is essential for any property owner or investor.

It is not enough to simply know the monthly income a property generates: the key is to analyze both gross and net yield to make informed decisions.

At Borneo Advisors, we work with owners and investors who want to optimize their portfolios, helping them understand which formula to apply in each case and how to improve the performance of their assets.

What Is Gross Rental Yield?

Gross yield is the first approximation of the return on a real estate investment. It is calculated by dividing the annual rental income by the purchase price of the property and multiplying the result by 100.

For example:

• Annual income: €12,000
• Purchase price: €200,000
• Gross yield: (12,000 / 200,000) x 100 = 6%

This calculation is useful for quickly comparing assets but does not reflect all the real costs of the investment.

What Is Net Rental Yield?

Unlike gross yield, net yield deducts all expenses associated with the property:

• Taxes (property tax, municipal charges).
• Community fees.
• Insurance.
• Maintenance and repairs.
• Possible vacancy periods.

Net yield offers a much more realistic view of the profit generated by the asset.

Yield Formula: How to Apply It Step by Step

The net yield formula is:

(Annual income – Annual expenses) / Total investment x 100

Example:

• Annual income: €12,000
• Annual expenses: €2,000
• Purchase price + expenses (notary, taxes, renovation): €210,000
• Net yield: (12,000 – 2,000) / 210,000 x 100 = 4.76%

As you can see, the difference can be significant. Correctly applying the rental yield formula allows for accurate investment comparisons and helps identify opportunities that truly add long-term value.

Gross vs. Net Yield: Which Should You Use?

Both formulas have their usefulness:

• Gross yield: perfect for quickly filtering which properties deserve deeper analysis.
• Net yield: essential to decide whether an investment is sustainable and profitable over time.

In a competitive market like Spain, where the average housing yield is around 7% (Idealista, 2024), understanding this difference is vital to avoid overestimating profits.

How to Improve a Property’s Yield

Before buying or during management, several strategies can increase yield:

• Renovating the property to increase its market value.
• Opting for mid-term rentals in urban areas with high tenant turnover.
• Optimizing tax costs by reviewing the cadastral value.
• Diversifying the portfolio with complementary assets (commercial, offices, logistics).

Calculate Precisely, Invest Strategically!

Knowing the difference between gross and net yield helps avoid common mistakes and allows you to build a stronger, more profitable portfolio.

At Borneo Advisors, we analyze each asset with precise formulas and a strategic vision that goes beyond the numbers, helping you maximize the value of your real estate portfolio.

If you would like us to review your calculations and design a personalized strategy for your properties, don’t hesitate to contact us.