Calculating Real Rental Property Returns
The gross rental yield (annual rent รท property value) understates the true cost of property investment. Deducting operating expenses (maintenance, insurance, vacancy) and income tax reveals the after-tax yield โ the real return you keep.
For example, a $300,000 property renting for $2,000/month shows a gross yield of 8%, but after $3,600 in annual expenses and 22% income tax, the after-tax yield drops to around 5.5%. Always calculate net yield before comparing real estate to other investments.
Frequently Asked Questions
Deductible expenses typically include mortgage interest, property taxes, insurance, repairs, depreciation, and property management fees. Consult a tax professional for your specific situation.
A gross yield of 8โ12% is often cited as a target for residential rental properties, but after-tax yield of 4โ6% is more realistic in many US markets depending on location and financing.