Property returns get quoted as several different percentages that are easy to confuse. Here's what gross yield, net yield, and cap rate each measure — and how fees and vacancy quietly cut into the headline number.
Gross yield vs net yield vs cap rate, how expenses and vacancy erode returns, a worked $300k rental example, and how investors compute year-over-year equity growth and IRR.
See also: Percentage calculator · Formula cheat sheet
Annual rent ÷ Property price × 100. The headline number, before any costs.(Annual rent − Annual expenses) ÷ Property price × 100. What you actually keep, relative to what you paid.Net operating income ÷ Current market value × 100. Like net yield, but measured against today's value rather than purchase price — the standard for comparing properties.A $300,000 property rents for $2,000/month = $24,000/year.
The gross figure looked like 8%, but a third of it disappeared into costs. Always underwrite on net.
| Drag on return | Typical size | Effect |
|---|---|---|
| Vacancy | 5–8% of rent | Rent isn't collected 100% of the year |
| Management | 8–10% of rent | Paid to a letting/management agent |
| Maintenance reserve | 1–2% of value/yr | Repairs, appliances, turnover |
| Taxes & insurance | Varies widely | Fixed annual carrying cost |
Each is a percentage taken off the top, and they compound down the gross yield toward the net.
Year-over-year equity growth is a percentage change: (This year's equity − Last year's equity) ÷ Last year's equity × 100. Equity rises from both price appreciation and mortgage paydown.
Total ROI combines cash flow and appreciation against cash invested. Because gains arrive over several years, investors annualize with a compound (CAGR/IRR) approach rather than simple division: Annualized return = (Ending ÷ Beginning)^(1/years) − 1. IRR generalizes this to uneven cash flows across the holding period. On typical residential rentals, "normal" total returns are often cited in the 8–12% range, but this varies enormously by market, leverage, and period — treat any single figure as a rule of thumb, not a guarantee.
Residential rental returns are often cited around 8-12% total, but this varies widely by location, leverage, and time period. Cap rates alone commonly sit in the 4-8% range. Treat any single number as a rough benchmark, not a promise.
Rental yield divides income by the price you paid; cap rate divides net operating income by the property's current market value. Cap rate is the standard for comparing properties because it uses today's value.
Gross yield ignores costs. Vacancy, management fees, maintenance reserves, taxes, and insurance each take a percentage off the top, so net yield can be a third lower than gross — 8% gross becoming about 5.3% net in a typical case.
It's a percentage change: (This year's equity - Last year's equity) / Last year's equity x 100. Equity grows from both appreciation and mortgage principal paydown.
Links point to primary sources and standards bodies. Tax rates and official formulas change over time — verify against the source for current figures.