What is the difference between gross yield and net yield on a property?
Gross yield is annual rent divided by property value or purchase price. Net yield is annual net operating income divided by the same value. Net yield is lower because it deducts operating costs, vacancy and bad debt that gross yield ignores.
Example: rent of 120,000 on a property worth 1,500,000 is an 8 percent gross yield. If NOI is 90,000, net yield is 6 percent.
It matters because gross yield can make a property look better than it performs.
Commonly misread:
- Comparing a gross yield on one property with a net yield on another.
- Using purchase price for one and current valuation for another.
- Forgetting that financing costs are outside both measures.
State the value basis used and which costs were deducted.
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