The simplest yield metric in real estate is also the one most often quoted carelessly. Rental yield = annual rent divided by home value. That's it. The fight is over what counts as "rent" and what counts as "home value" — and whether you remembered to subtract anything before quoting the headline number.
This guide covers the gross-vs-net distinction, the operating-expense ratio that lives in the gap, and the two ways even experienced investors trip over yield.
The formula
Annual rent ÷ home value.
If a property rents for $2,000/month and is worth $300,000:
- Annual rent = $24,000
- Gross yield = $24,000 ÷ $300,000 = 8.0%
That's gross yield. It's the headline number on every spreadsheet, every "we crunched the numbers" social-media post, and most broker listings.
Net yield subtracts operating expenses from rent first:
- Net rent (after ~40% expenses) = $14,400
- Net yield = $14,400 ÷ $300,000 = 4.8%
The gap between 8.0% and 4.8% is the entire reason gross yield deserves a footnote everywhere it appears.
Gross vs. net yield
Gross yield is fast. You can compute it from any listing in 10 seconds — (asking rent × 12) ÷ list price. That speed is the only reason it survives in conversation. As a decision input, it overstates returns the same way the sticker price of a car overstates what you'll spend driving it for a year.
Net yield subtracts the operating costs the building actually incurs:
- Property taxes
- Insurance
- Property management (typically 8% of gross rent)
- Vacancy allowance (one month per year = ~8% drag)
- Maintenance reserve (5–10% of gross rent)
- HOA fees if applicable
- Utilities you pay (rare in single-family, common in small multifamily)
A reasonable default in most U.S. markets is 35–45% of gross rent gets eaten by operating expenses. The "50% rule" (50%) is a conservative shortcut. Newer Sun Belt construction with low maintenance and a non-union state can come in around 30%. Old Northeast multifamily with high property tax and union plumbers can blow past 50%.
A worked example
Use the calculator below to see how net yield collapses as the expense ratio grows. Start with a $300,000 home, $1,800/month rent (a typical mid-market combination), and a 40% expense ratio.
Try it: Rental Yield Calculator
Gross and net yield are estimates based on the inputs and the selected expense ratio. Actual income and expenses will vary by property and market. Not investment advice.
What happens at 30% expenses vs. 50%? The gap between "I'm getting a great deal" and "I'm losing money on every check that doesn't bounce" is exactly that slider.
What's a "good" yield by market band
Yields cluster by market type, not by individual property. Here is what gross rental yield actually looks like across US metros right now, measured across every ZIP we track.
Gross rental yield by metro — as of May 2026
| Metro | Typical home value | Gross yield | Type |
|---|---|---|---|
| San Francisco–Oakland–Fremont, CA | $1,187,050 | 3.2% | Coastal Class-A |
| Los Angeles–Long Beach–Anaheim, CA | $920,507 | 3.6% | Coastal Class-A |
| New York–Newark–Jersey City, NY-NJ | $708,265 | 4.8% | Coastal Class-A |
| Austin–Round Rock, TX | $415,653 | 4.8% | Sun Belt |
| Nashville, TN | $433,635 | 4.8% | Sun Belt |
| Phoenix–Mesa–Chandler, AZ | $445,318 | 4.8% | Sun Belt |
| Columbus, OH | $334,379 | 5.5% | Midwest |
| Kansas City, MO-KS | $329,212 | 5.9% | Midwest |
| Indianapolis, IN | $295,397 | 6.5% | Midwest |
| Detroit–Warren–Dearborn, MI | $283,834 | 6.2% | Distressed/tertiary |
| Cleveland, OH | $252,194 | 6.8% | Distressed/tertiary |
| Memphis, TN-MS-AR | $243,350 | 7.5% | Distressed/tertiary |
A few patterns the data makes obvious:
- Coastal Class-A markets sit in the low single digits. SF at 3.2% isn't a "bad" yield — it's a market where buyers price in appreciation and don't expect the income side of the equation to do the work.
- Sun Belt markets cluster tightly around 4.8%. Austin, Nashville, and Phoenix have nearly identical gross yields right now. A decade of prices outrunning rents compressed the yield distribution.
- Midwest crosses into yield territory. Columbus through Indianapolis (5.5–6.5%) is where yield starts mattering as much as appreciation. Austin's 78704 at ~3% gross is the canonical compressed-yield example — strong rent and strong prices, but the prices grew faster.
- Even "distressed" metros only inch past 7% at the metro level. The eye-popping double-digit yields live at the ZIP level (see the 10 highest-yield ZIPs for ZIPs above 20% gross), not the metro level — because metro averages blend rough and recovering neighborhoods.
A 6% gross yield in San Francisco's 94027 submarket would suggest something is broken with the property. A 6% gross yield in Memphis is unremarkable. The number alone is meaningless without the market context.
Yield vs. cap rate vs. cash-on-cash
Three metrics often get used interchangeably. They're not the same:
- Gross yield: rent ÷ home value. Fastest, most overstated.
- Cap rate: net operating income ÷ purchase price. Cleaner; standard for institutional comparison. See the cap rate explainer for the details.
- Cash-on-cash return: annual cash flow after mortgage ÷ down payment + closing costs. The only one that reflects your actual leveraged return.
The right metric depends on the question:
- Comparing properties unleveraged → cap rate.
- Quickly screening listings → gross yield.
- Deciding whether to buy with a specific mortgage → cash-on-cash.
Most spreadsheet errors come from using gross yield where one of the other two belongs.
Two traps
Two specific failures are worth naming because they recur across investor types.
The headline yield isn't lying. It's just answering a different question than the one you actually care about.
When yield is the wrong tool
Yield assumes the property is roughly stable. It tells you nothing useful about:
- Markets in transition (e.g., a ZIP gentrifying or de-gentrifying). The current yield reflects the current rent, which is exactly the thing changing.
- Heavy-value-add properties. If you're buying to renovate and re-tenant, the yield you'll achieve has little to do with the yield at purchase.
- Decisions about leverage. Yield is unleveraged by design. Once you finance the deal, cash-on-cash return is the metric you actually need.
Yield is the right tool for: comparing two stable rentals in the same submarket, screening listings against a known-good benchmark, and putting headline numbers in market context. Don't ask it to do more than that.
For deciding what to do with a specific property given a specific mortgage, you want cap rate plus the rental-yield calculator above plus a frank conversation about your real holding period.
Frequently asked
What's a good rental yield? For US residential rentals, gross yields run roughly 3% (coastal Class-A) to 7.5% (distressed metros) at the metro level — individual ZIPs stretch much wider, from below 2% in expensive submarkets to above 25% in deeply distressed neighborhoods. A "good" yield depends entirely on your strategy: 4–5% in a strong appreciation market can outperform 8% in a flat one once total return is counted.
Is gross yield the same as cap rate? No, but they're related. Gross yield is annual rent divided by home value with no expenses subtracted. Cap rate subtracts operating expenses first (taxes, insurance, vacancy, management, maintenance) and divides net operating income by the price. As a rough conversion, multiply gross yield by 0.6 to estimate the standardized cap rate, or use the cap rate explainer for the math.
What is the 50% rule in rental yield? A conservative shortcut: assume operating expenses will consume roughly 50% of gross rent. So if a property has a 10% gross yield, expect a 5% net yield in your underwriting. The actual expense ratio is usually closer to 35–45% in most US markets — the 50% rule is intentionally pessimistic so it catches the cases where you forgot a meaningful cost line.
Should I use gross or net yield to compare properties? Net yield (cap rate) is the right comparison metric — gross yield overstates returns the same way the sticker price of a car overstates what you'll spend driving it for a year. Use gross yield to filter quickly from a listing site; switch to net (or itemized cap rate) before any serious comparison.