Rental yield is the annual rent a property earns divided by its value, expressed as a percentage. Gross yield uses the full rent; net yield first deducts the costs that the owner pays and cannot pass on to tenants. Yield is a useful way to compare the income of different properties, but it is not the same as the return you earn from a real estate fund. Fund return also depends on the fund's own costs, on whether property values rise or fall, and on borrowing, which magnifies both gains and losses. A high yield is not automatically attractive either: it can be a sign that the market sees more risk in the property or its tenants.
What is gross yield?
Gross yield compares the total annual rent with the value of the property:
Gross yield = R / V
where R is the annual rent receivable under the leases and V is the value of the property, either the purchase price or a current valuation.
Gross yield is simple and widely quoted. Its weakness is that it ignores costs and vacancy. Two properties with the same gross yield can produce very different income for the owner if one has higher maintenance costs or more empty space.
How do I calculate net rental yield?
Net yield subtracts the costs that the owner bears:
Net yield = (R minus C) / V
where C is the annual non-recoverable costs. These typically include maintenance and repairs not charged to tenants, insurance, property taxes the owner pays, letting and management costs, and the loss of rent from vacant space. Which costs are recoverable depends on the leases. In commercial property, many running costs are passed to tenants through service charges, but some always stay with the owner.
Some analysts also adjust V for the costs of buying, such as transfer taxes and fees, which lowers the yield. When you compare figures, check which definition is used.
Gross vs net yield at a glance
| Measure | Formula | What it includes | What it leaves out |
|---|---|---|---|
| Gross yield | R / V | Full contractual rent | Costs, vacancy, incentives |
| Net yield | (R minus C) / V | Rent minus non-recoverable costs | Fund costs, changes in value, borrowing |
| Fund return | Change in NAV plus distributions | Income, valuation changes, borrowing effects, fund costs | Your personal taxes and any entry or exit fees outside the fund |
What is the difference between yield and total return?
Yield measures income relative to value at a point in time. Total return measures what an investor actually gains or loses over a period, combining income and the change in value. For a fund investor, several layers lie between a property's yield and your return:
- Fund costs. Management fees, administration, depositary, valuation and transaction costs reduce what reaches investors. The KID shows costs in a standardised format. See fund fees.
- Changes in property values. If valuations fall, total return can be negative even when rental income is stable. If they rise, return can exceed yield. See how properties are valued.
- Borrowing. A fund that borrows can earn more than the property yield when values rise and the cost of debt is lower than the yield, but it loses more when values fall. Interest is also a cost. Under ELTIF 2.0, borrowing is limited to 50 % of NAV for ELTIFs open to retail investors and 100 % of NAV for those offered only to professional investors. See leverage.
- Cash and other assets. Funds hold liquid assets for redemptions and costs, which usually earn a different return from property.
- Your own fees and taxes. Entry fees charged by the distributor and taxes depend on your situation and country.
A hypothetical example
The following figures are a hypothetical illustration with round numbers, not data on any property or fund and not a forecast.
A building is valued at 1 000 000. Its leases provide annual rent of 60 000. Non-recoverable costs, including maintenance, insurance and an allowance for vacancy, are 10 000 a year.
- Gross yield = 60 000 / 1 000 000 = 6 %.
- Net yield = (60 000 minus 10 000) / 1 000 000 = 5 %.
Now assume the building sits in a fund. During the year, the valuer reduces the building's value to 950 000. The income return is still around the net yield, but the fall in value offsets it, and fund costs reduce the result further. The investor's return for the year is well below the net yield and may be close to zero or negative. If the fund had borrowed against the building, the fall in value would weigh more heavily on the investors' equity. The fee calculator can show how ongoing costs affect results over time.
Why can a high yield signal higher risk?
The yield at which a property trades reflects how much income buyers require for the risk they take on. A higher yield often means the market sees one or more of these issues:
- a tenant with weaker finances or a short remaining lease;
- a location with less demand or more competing space;
- an older building that may need investment;
- a segment where future demand is uncertain;
- a property that would be hard to sell.
A lower yield, in contrast, usually reflects a property whose income buyers consider more dependable or which has stronger prospects for value growth. Neither is better in itself. A high yield can compensate for risk, or it can be a warning that income may not last. It is worth asking why a yield is high before treating it as an advantage.
What is a good rental yield?
There is no single good rental yield. Appropriate levels differ by segment, location, building quality, lease length and the general interest rate environment, and they change over time. Rather than comparing a yield with a rule of thumb, compare it with similar properties and ask what risks it reflects. For fund investors, the more useful questions concern the fund's total return over time, its costs, its borrowing and the quality of its income.
Limitations of yield figures
- Yields are snapshots. Rents change, leases end and values move.
- Definitions vary. Gross, net, initial, reversionary and other variants are calculated differently.
- Value is an estimate. If V is a valuation rather than a sale price, the yield inherits its uncertainty.
- Yield ignores timing. It does not show when leases expire or when capital spending is due.
For a broader view of investing in property directly or through funds, see real estate fund vs rental flat and commercial real estate.
Frequently asked questions
How do I calculate gross and net rental yield?
Gross yield is annual rent divided by the value of the property. Net yield is annual rent minus non-recoverable costs, divided by the value of the property.
What is the difference between yield and total return?
Yield measures income relative to value. Total return combines income with the change in value over a period and, in a fund, is also affected by costs and borrowing.
What is a good rental yield?
There is no universal answer. Yields depend on segment, location, building, tenants and interest rates. A high yield may reflect higher risk rather than a better opportunity.
Is a fund's distribution rate the same as rental yield?
No. A distribution rate shows what the fund pays out relative to its value. It can differ from the property yield because of fund costs, borrowing, cash holdings and the fund's distribution policy.
Why does borrowing affect fund return?
Borrowing increases the amount of property the fund controls relative to investors' money. It can raise returns when values rise, but it magnifies losses when values fall, and interest is an additional cost.
Primary sources
- Regulation (EU) 2015/760 on European long-term investment funds, EUR-Lex (2026-10-01)
- Regulation (EU) 2023/606 amending Regulation (EU) 2015/760 (ELTIF 2.0), EUR-Lex (2026-10-01)
- Regulation (EU) No 1286/2014 on key information documents for PRIIPs, EUR-Lex (2026-10-01)
General information. Not investment advice or a suitability assessment.
