How to Read Rental Yield Without Fooling Yourself

Gross yield is a useful first filter, but it is not a forecast. Dividing annual rent by purchase price ignores the costs and interruptions that decide whether an investment actually produces cash.

Build a net income figure

Start with achievable rent, then subtract vacancy, management, maintenance, insurance, taxes, service charges, utilities paid by the owner, and a reserve for larger replacements. Use local evidence rather than the highest advertised rent.

Include the cost of entry

Transfer taxes, legal work, finance fees, furnishing, and immediate repairs are part of the capital committed. Measuring income against the full acquisition cost creates a more honest comparison between properties.

Stress-test the result

Try lower rent, a longer vacancy, higher interest, and one major repair. If a modest change removes the entire return, the headline yield was compensation for risk rather than a bargain.