Rental Yield: Gross, Net, and Why the Difference Matters

Gross yield is the number in the pitch. Net yield is the number you live with. The gap between them is where most disappointed property investors were lost.

Gross yield

Annual rent ÷ purchase price × 100

A flat bought at ₹80 lakh renting at ₹22,000 a month:

(22,000 × 12) ÷ 80,00,000 × 100 = 3.3%

That is the number every listing quotes and it is close to meaningless on its own.

Net yield

(Annual rent − annual costs) ÷ (purchase price + acquisition costs) × 100

Both halves of the fraction change, and both change against you.

The costs to subtract

Society maintenance. Often paid by the owner, and it rises.

Property tax. Annual, municipal, unavoidable.

Repairs and replacement. Budget a realistic annual figure — a geyser, a pump, paint, plumbing. Averaged over the years, this is not small.

Vacancy. The critical one. Assume a period between tenants each cycle. Even one month vacant a year removes roughly 8% of the rent.

Re-letting brokerage. Typically the equivalent of a month's rent, each time a tenant changes.

Management, if you are not doing it yourself.

The acquisition costs to add

Stamp duty, registration, legal fees, and the interiors required to make it rentable. Together these commonly add a meaningful percentage to what you actually invested.

The same flat, honestly

Rent ₹22,000/month = ₹2,64,000 a year.

Subtract maintenance, property tax, an annual repairs allowance, one month's vacancy and amortised re-letting brokerage, and the income drops substantially. Divide by ₹80 lakh plus stamp duty, registration and the fit-out, and the denominator rises too.

The net figure typically lands well under half the gross. That is not a pessimistic scenario — it is the normal one.

Why anyone buys anyway

Because residential property in India has historically been bought for capital appreciation, with rent as a partial offset to the holding cost. That is a legitimate thesis. It is just a different thesis from "the rent pays for it".

Be clear which one your client is buying, because they behave completely differently in a flat market.

Yield on a loan-funded purchase

If the EMI exceeds the net rent — which at typical residential yields it usually does — the investor is funding the gap monthly from income. That is not a problem if they know it and can sustain it. It is a serious problem if nobody said it out loud.

Calculate the monthly gap explicitly and put it in front of them.

The comparison that matters

Compare net yield plus expected appreciation against the alternatives available to that specific investor, after tax, with their own liquidity needs factored in.

That is a financial planning conversation, not an agent's conversation, and the right move is to give them accurate numbers and send them to someone qualified. Nothing here is investment advice, and yields, costs and tax treatment vary by city, property and individual circumstance.