Rental yield tells you how much a property earns each year relative to what it costs. It is the quickest way to compare two units that rent for different amounts at different prices. There are two versions, gross and net, and the gap between them is where most mistaken expectations come from.
The formula
Gross yield uses rent before any deduction. It is easy to calculate, and also easy to overrate. The Corporate Finance Institute makes this point about the gross rent multiplier, which is the same idea turned upside down (price divided by annual gross rent): its major limitation is that it ignores operating expenses, so it cannot show actual profitability.
Net yield follows the logic of the capitalization rate, which the Corporate Finance Institute describes as net operating income divided by the property's current market value, where net operating income is income after the expenses of running the property. The same source cautions that investors should not base a purchase on that rate alone. Net yield is a strong screen, not a full analysis.
Worked example
Illustrative example with hypothetical numbers. A unit bought for 2,000,000 EGP rents for 15,000 EGP a month.
| Item | Amount (EGP per year) |
|---|---|
| Annual rent (15,000 x 12) | 180,000 |
| Vacancy (one empty month) | 15,000 |
| Maintenance and repairs | 10,000 |
| Broker or management fee (5% of rent) | 9,000 |
| Service charges paid by the owner | 6,000 |
| Total owner costs | 40,000 |
| Net annual income | 140,000 |
Two points of yield disappeared once the costs went in. On a different unit, with longer vacancies or higher service charges, the gap could be wider.
Variation: what you divide by
The same net income gives different yields depending on the denominator.
| Denominator | Value (EGP) | Net yield |
|---|---|---|
| Contract price | 2,000,000 | 7.0% |
| Total cost incl. 100,000 of fees and furnishing | 2,100,000 | 6.7% |
| Today's market value, if it has risen | 2,500,000 | 5.6% |
Use total cost when you want to know what your own money earns. Use today's market value when you are deciding whether to keep the unit or sell it and use the money elsewhere, which is how the capitalization rate is defined. Whichever you choose, say which one it is, and compare like with like.
Common mistakes
- Comparing one unit's gross yield with another's net yield.
- Assuming twelve months of rent every year. Even one empty month cuts annual rent by about 8%.
- Forgetting the costs that fall on the owner rather than the tenant. Check who pays service charges and repairs under the lease.
- Dividing by the contract price when you also paid fees, finishing and furnishing to make the unit rentable.
- Computing yield on an off-plan unit as if it earned from day one. A unit earns rent only after delivery and finishing; until then, the yield on the money already paid is zero.
- Treating a broker's rent estimate as a fact. Ask where the number comes from.
- Reading yield as the whole return. Yield is income only. A change in the unit's value is separate, and both belong in an ROI calculation.
What to ask before trusting the result
- Is the quoted rent from a signed lease on a comparable unit, or an estimate?
- Furnished or unfurnished? Furniture changes both the rent and your cost.
- Who pays service charges, utilities connection and repairs during the lease?
- How long do similar units stay empty between tenants, in the owner's own experience?
- What fees, deposits or finishing are you paying on top of the contract price?
Frequently asked questions
What is the difference between gross and net rental yield?
Gross yield divides the full year's rent by the price. Net yield subtracts the owner's costs first. Net is always lower and is the better guide to what you will actually earn.
Is net rental yield the same as the cap rate?
They follow the same logic: income after operating costs divided by value. The Corporate Finance Institute defines the cap rate using current market value. Many owners compute net yield on what they paid instead, so state your denominator.
Do installments affect rental yield?
Yield as defined here uses the property price, so the payment plan does not change it. Installments do change how much of your own money is in the unit, which is what return on equity measures.
What is a good rental yield in Egypt?
This guide does not give a target figure, because a yield only means something next to the costs, risks and alternatives in your situation. Calculate the net yield on the actual offer and compare it with the return you could get on the same money elsewhere.
Should I use monthly or annual rent?
Use annual rent. Yield is an annual rate, so multiply monthly rent by 12, then subtract any months you expect the unit to be empty.
Run the numbers
Once you have your net income, the CalcRealty ROI and annual return on equity (ROE) calculators put that income in the context of the whole deal, and its total unit price calculator shows the contract price and total cash across the down payment and installments, which gives you the denominator. Download CalcRealty on Google Play, free, in Arabic and English. For area context, see the Sheikh Zayed and 6th of October guide and the New Cairo guide. To capture every cost in the denominator, read the total cost of ownership guide.
Results are planning estimates; the developer contract sets the final amounts.