Rental Property Yield Calculator

Check whether a buy-to-let property is a good investment: gross and net yield, monthly cash flow with a mortgage and the return on the money you put in yourself.

Purchase

Transfer taxes, notary, land registry, legal fees and agency. Usually 8 % to 12 % of the price, depending on the country and region.

What you spend to get the property ready to let.

Rent and annual costs

Months without a tenant or with unpaid rent. One a year is a prudent estimate for long-term lets.

A reserve for breakdowns and wear. 5 % to 10 % of the rent collected is typical.

If an agency manages the let for you. Leave at 0 if you manage it yourself.

Financing (optional)

Leave at 0 if you buy in cash.

When should you use this calculator?

Use it before making an offer on a buy-to-let, to compare several properties or to decide whether a mortgage or a cash purchase suits you better. The gross yield property portals advertise only divides the rent by the price. Here you also see the net yield, after costs, empty months and renovation, and what actually lands in your account each month when a mortgage is involved.

How it is calculated

Gross yield is twelve months of rent divided by the purchase price. Net yield starts from the rent you actually collect, minus empty months, and subtracts the yearly costs: service charges, property tax, insurance, a percentage for maintenance and, if any, the letting agent. That income is divided by everything the investment costs: price, purchase costs and renovation. If there is a mortgage, its payment is worked out with a standard repayment schedule and subtracted from the income to give the cash flow. The cash-on-cash return divides that cash flow by the money you put in, and the last figure adds the part of the debt you repay in the first year, because that money is not an expense: it is equity you build.

Practical example

A 150,000 € flat with 15,000 € of purchase costs and 5,000 € of renovation lets for 800 € a month. With one empty month a year, 600 € of service charges, 400 € of property tax, 250 € of insurance and 5 % for maintenance, net income is 7,110 € a year: a 6.40 % gross yield and a 4.18 % net yield. Bought with a 120,000 € mortgage at 3 % over 25 years, the payment is 569.05 € a month and the cash flow drops to about 23 € a month: only 0.56 % on the 50,000 € put in. But 3,273 € of debt is repaid that year, and adding it the return on your cash rises to 7.11 %.

What about taxes?

All figures are before income tax, because how rental income is taxed depends on your country of residence and sometimes on the region. Many countries let you deduct running costs, mortgage interest and depreciation of the building, and some give reductions for long-term residential lets. In Spain, for example, residential rent is taxed under IRPF as income from real estate and can qualify for 50 % to 90 % reductions. Check your country's rules before comparing this investment with others that already show after-tax returns.

Common mistakes

The most common mistakes: trusting the gross yield in the listing; forgetting purchase costs, which can add 15,000 € to a 150,000 € flat; assuming the property will be let all twelve months; not budgeting for repairs; and looking only at the mortgaged cash flow, which can be close to zero even when the investment is sound because you repay debt every month. It is also a mistake to ignore income tax and the possibility of rate rises on a variable mortgage.

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Frequently asked questions

What is a good rental yield?

It depends on the area and the risk, but as a reference a net yield of 4 % to 6 % before tax is common for long-term lets in large cities, and somewhat more where prices are low. Below 3 % net, an index fund or a savings deposit often pays something similar with far less work.

What is the difference between gross and net yield?

Gross yield only divides annual rent by the purchase price. Net yield subtracts the yearly costs (service charges, property tax, insurance, maintenance, empty months) and divides by everything invested, including purchase costs and renovation. Net is usually 1.5 to 3 points lower.

Is it better to buy with a mortgage or in cash?

With a mortgage you put in less money and, if the rent covers the payment, leverage can raise the return on your cash. But cash flow falls, you carry interest-rate risk and you cover any period without a tenant yourself. In cash the return is lower but steadier.

What is cash flow on a rental?

It is the money left each month after collecting the rent and paying every cost, including the mortgage payment. Positive cash flow means the property pays for itself; negative means you top it up every month, even though you are repaying debt at the same time.

Why add the principal repaid to the return?

Because the part of each payment that repays the loan is not an expense: it cuts your debt and increases the share of the property you own. That is why an investment with near-zero cash flow can still have a reasonable return if you repay a good chunk of the mortgage each year.

How many empty months should I assume?

For a long-term let in an area with demand, one a year is a prudent estimate: it covers tenant changes, small works and the odd unpaid month. In areas with less demand or high tenant turnover, assume two or three.