What property yield means
Property yield measures how much return a home can generate relative to the money invested. For a rental flat, you usually compare annual rent with purchase price, costs and capital contributed.
The problem is that many deals look attractive if you only look at gross yield, but stop looking good once you add transfer tax, community fees, property tax, insurance, maintenance, mortgage, vacancy and possible renovations.
Gross yield formula
Gross yield is the simplest formula. It is calculated like this:
Gross yield = annual rent / purchase price × 100
For example, if you buy a flat for €250,000 and let it for €1,200 a month, annual rent would be €14,400. Gross yield would be:
€14,400 / €250,000 × 100 = 5.76%
At first glance it may look like an interesting deal. But we have not deducted any costs yet.
Net yield formula
Net yield tries to get closer to reality because it deducts the property’s recurring costs.
Net yield = net annual income / total investment cost × 100
Here the purchase price alone is not enough. You should add taxes, conveyancing costs, renovation, furniture and any outlay needed to put the flat on the rental market.
Which costs you should include
To calculate a realistic yield, you should include at least these items:
- Transfer tax or taxes linked to the purchase.
- Notary, land registry, handling fees and valuation.
- Community / homeowners’ association fees.
- Property tax (IBI).
- Home insurance.
- Maintenance and repairs.
- Periods without a tenant.
- Renovation and furniture.
- Mortgage financing cost.
- Taxes on rental income.
Ignoring these costs usually inflates yield artificially and can lead you to buy a home that actually leaves little margin.
Realistic example: €250,000 flat
Purchase price
€250,000
Monthly rent
€1,200
Annual rent
€14,400
Gross yield
5.76%
Now imagine that between transfer tax, notary, registry, renovation, furniture and other initial costs, total cost rises to €280,000. On top of that, between community fees, property tax, insurance, maintenance and vacancy we estimate €3,000 a year in costs.
Annual income
€14,400
Annual expenses
€3,000
Net annual income
€11,400
Approximate net yield
4.07%
Apparent
Gross yield
5.76%
On the listing price, without deducting fees or the real entry cost.
More realistic
Net yield
4.07%
After recurring costs and against the deal’s total real cost.
The deal goes from looking like 5.76% gross to an approximate net yield of 4.07%. And that is before personal tax, financing or possible deviations.
Difference between yield and cash flow
Yield measures annual return on capital or investment cost. Cash flow measures whether, month to month, more money comes in than goes out.
A home can have an acceptable yield on paper and still generate little cash flow if the mortgage is high, costs are heavy or real rent falls below expectations.
What cash on cash is
Cash on cash compares annual cash flow with the money you actually put in from your own pocket. It is especially useful when you buy with a mortgage, because you have not paid the full purchase price in cash.
Cash on cash = annual cash flow / capital contributed × 100
This indicator helps you see whether locked-up capital is working well or whether the deal depends too much on future appreciation.
When a yield is good
There is no single valid figure for all of Spain. A yield can be reasonable in a prime area and fall short in a higher-risk area. What matters is comparing yield, rent stability, liquidity, financing, vacancy risk and alternative investments.
As a practical rule, distrust any deal that is only attractive if everything goes perfectly: maximum rent, zero vacant months, no repairs and stable interest rates.
Common mistakes when calculating yield
- Using gross yield only.
- Not including purchase taxes.
- Forgetting community fees, property tax and insurance.
- Setting aside nothing for maintenance.
- Assuming the flat will always be let.
- Leaving out renovation and furniture.
- Confusing a low mortgage payment with a good investment.
- Not comparing against other investment alternatives.
Calculate your case with the free calculator
If you have a specific flat in mind, you can use CalculaPiso’s free calculator to estimate gross yield, net yield, cash flow, cash on cash, capital required and purchase costs.
Go to the yield calculatorIf you are serious about a specific deal
The calculator gives a first approximation. If you are about to sign a reservation or want to compare several homes, the CalculaPiso Premium Report adds stress scenarios, risks, comparison versus other alternatives and an indicative verdict.
See Premium ReportFrequently asked questions
Common questions about rental yield
How is a flat’s gross yield calculated?
Divide annual rent by purchase price and multiply by 100. It is a first approximation, but it does not include costs or financing.
How is net yield calculated?
Net yield deducts costs such as community fees, property tax, insurance, maintenance, vacancy, management, taxes and other deal costs.
What yield is good for housing?
It depends on the area, risk, financing and rent stability. Look at net yield, cash flow, capital contributed and stress scenarios.
Is annual rent divided by price enough?
No. That formula only shows gross yield. To decide well you must include costs, taxes, mortgage, renovation and possible vacant months.