Rental yield: separate the headline from the cash flow
Gross yield is a simple ratio. Net income and financed cash flow answer different questions about the same property.
2 min read
Gross yield uses rent before costs. Net yield depends on the expenses and capital basis you choose. Neither predicts a particular residence’s future income.
Start with gross yield
Gross rental yield divides annual rent by the property purchase price and multiplies the result by 100. For an illustrative AED 1 million property with AED 60,000 annual rent, the gross yield is 6%. This example is not a forecast or a rental offer.
Subtract the costs you actually expect
Net rental income deducts the ownership and letting expenses included in your model. State whether you have allowed for service charges, maintenance, vacancy and management. A net yield is only comparable with another model if the cost categories and capital basis match.
Financing changes cash flow
Loan repayments affect the money remaining each month. They are not included in a gross yield figure. Keep the rental calculation and the financing schedule visible separately, then combine them to understand your estimated cash flow.
Test the assumptions
Run a lower rent and a longer vacancy period as well as your main scenario. Compare the result with the amount you can afford to carry. Asking rents and advertised yields are not proof of what your particular residence will earn.
Illustration: vacancy changes the result
| Assumption or result | No vacancy assumed | One month without rent |
|---|---|---|
| Purchase price basis | AED 2,000,000 | AED 2,000,000 |
| Assumed annual rent before vacancy | AED 100,000 | AED 100,000 |
| Rent collected in the model | AED 100,000 | AED 91,666.67 |
| Assumed annual operating costs | AED 20,000 | AED 20,000 |
| Income after those costs | AED 80,000 | AED 71,666.67 |
| Net yield on purchase price | 4.00% | 3.58% |
All inputs are illustrative, not market evidence. This model excludes purchase costs, borrowing, taxes and resale. Gross yield before vacancy is 5%. Change the capital basis if acquisition costs are included.
Use your own assumptions
Keep income and resale separate
A future sale may produce a gain or a loss. Neither belongs in a claim of guaranteed rental performance. Record your income assumptions, costs and intended holding period before using a yield figure to compare properties.
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