How Do You Calculate Rental Yield on a Property?
Rental yield measures the annual income a property generates as a percentage of its purchase price. The formula is straightforward: divide annual rental income by the property price, then multiply by 100. According to the National Association of Realtors (NAR), rental yield is the first metric professional investors calculate before making any offer.
Gross Rental Yield = (Annual Rent ÷ Property Price) × 100
Here is a worked example with real 2026 numbers. A single-family home in Cleveland, Ohio costs $145,000 and rents for $1,350 per month.
- Annual rent: $1,350 × 12 = $16,200
- Gross yield: ($16,200 ÷ $145,000) × 100 = 11.2%
Gross yield provides a quick comparison between properties, but gross yield ignores every expense. According to the IRS Schedule E filing data, the average US rental property incurs 35-45% of gross rent in operating expenses. That means gross yield overstates your actual return by roughly a third.
Regarding rental yield calculation, the gross figure is only the starting point — net yield reveals the true income return after every operating expense is subtracted.
What Is a Good Rental Yield in the US in 2026?
A good net rental yield in the US falls between 5% and 8% as of mid-2026, according to data from the US Census Bureau and the National Apartment Association (NAA). Yields vary dramatically by market:
| Market Type | Example Cities | Typical Net Yield | Median Property Price |
|---|---|---|---|
| High-Yield Midwest | Cleveland, Memphis, Indianapolis | 7-9% | $120,000-$175,000 |
| Moderate Sun Belt | Dallas, Atlanta, Charlotte | 5-6.5% | $250,000-$350,000 |
| Low-Yield Coastal | San Francisco, New York, Seattle | 2-4% | $600,000-$1,200,000 |
| Emerging Small Markets | Birmingham, Toledo, Syracuse | 7-10% | $90,000-$140,000 |
Table: US rental yield ranges by market type, 2026 estimates (Sources: US Census Bureau, NAA, BLS)
The US Census Bureau reports the national median gross rental yield at approximately 6.3%, which translates to roughly 3.8-4.5% net after expenses. Any property beating that national median is performing above average.
Yield correlates inversely with property price and risk. The 9% yield in Toledo comes with higher vacancy risk and slower appreciation than the 3.5% yield in San Jose. The Bureau of Labor Statistics (BLS) tracks rent growth data that shows Midwest rent growth outpaced Sun Belt rent growth by 2.3 percentage points over the past 12 months.
What Expenses Do You Subtract for Net Rental Yield?
Net rental yield subtracts every operating expense from gross rent before dividing by the property price. The IRS permits these deductions on Schedule E for rental property owners. Here are the standard expense categories with typical percentages:
- Property Tax: 1.0-2.5% of property value annually, varying by state. Texas averages 1.7%. Hawaii averages 0.3% (Tax Foundation).
- Landlord Insurance: $1,200-$3,500/year depending on location. Florida and Texas premiums surged 30-50% since 2023 (NAIC).
- Property Management: 8-12% of collected rent. The National Apartment Association reports 10% as the national median.
- Maintenance and Repairs: 5-10% of gross rent annually. Older properties skew higher.
- Vacancy Allowance: 5-8% of gross rent. The US Census Bureau reports the national rental vacancy rate at 6.6% as of Q1 2026.
- HOA Fees: $200-$500/month where applicable. Covers exterior maintenance in some developments.
- Capital Expenditure Reserve: 5-8% of gross rent for big-ticket items (roof, HVAC, appliances).
Net Rental Yield = ((Annual Rent − Total Annual Expenses) ÷ Property Price) × 100
Returning to the Cleveland example: the $145,000 property with $16,200 gross annual rent incurs approximately $5,800 in annual expenses. That produces net operating income of $10,400 and a net yield of 7.2%.
Regarding net yield calculation, every expense category matters — skipping the CapEx reserve alone can overstate your yield by 0.5-1.0 percentage points, and ignoring vacancy costs adds another 0.5% of error.
Is Rental Yield the Same as Cap Rate?
Rental yield and capitalization rate (cap rate) measure similar things but serve different purposes. Both divide income by property value. The key difference: cap rate uses Net Operating Income (NOI) as defined by the Appraisal Institute, and cap rate always excludes mortgage payments.
- Cap Rate = Net Operating Income ÷ Property Value (no mortgage)
- Net Rental Yield = (Annual Rent − Operating Expenses) ÷ Property Price
- Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested (includes mortgage)
The IRS treats these differently too. Schedule E reports rental income after mortgage interest, while cap rate ignores financing entirely. For a property purchased with a 25% down payment, cash-on-cash return often exceeds cap rate because leverage amplifies the return on invested capital.
| Metric | Includes Mortgage? | Best For |
|---|---|---|
| Gross Yield | No | Quick comparison between properties |
| Net Yield | No | True property income performance |
| Cap Rate | No | Professional valuation and comparison |
| Cash-on-Cash Return | Yes | Your actual return on invested cash |
Table: Rental return metrics compared (Sources: IRS Schedule E, Appraisal Institute)
Choose the metric that matches your decision. If you are comparing two markets, use net yield. If you are valuing a specific deal, use cap rate. If you are deciding whether to invest your cash, use cash-on-cash return.
How Do You Use Rental Yield to Make Better Investment Decisions?
Rental yield becomes a decision-making tool when you set a minimum threshold and compare every property against it. Professional investors at the National Apartment Association typically set a minimum net yield of 5.5% as their acquisition threshold in 2026.
Here is a practical framework:
- Screen with gross yield. Eliminate anything below 6% gross — the expenses will push net yield below 3.5%.
- Calculate net yield with local expenses. Property tax varies by state from 0.3% to 2.5%. Insurance varies from $800/year in Ohio to $4,500/year in coastal Florida.
- Compare against the local median. A 6% net yield in Memphis is average. The same 6% in San Francisco is exceptional. Use PIE's rental property calculator to benchmark any US property against local and national data.
- Factor in rent growth. The BLS reports rent growth of 3.8% nationally over the past 12 months, but individual markets range from -2% to +8%. Yield today matters less than yield in three years.
Learn more about the key financial metrics in our guide to the financial metrics every property investor must know. For a complete deal analysis framework, see our guide on how to analyze a rental property deal.
About the Author: Nick Thorp is the founder of PIE (Property Intelligence Engine) and Property Aura, with 10 years of experience in property investment research and data analysis. Try PIE free.