Rent Out Profitably: How to Calculate Net Yield + Assess Tenant & Repair Risks (Step-by-Step)
A rental property is “truly profitable” only when you look beyond monthly rent or a rough yield figure. You need Net Yield, which subtracts real operating costs and builds in inevitable risks—such as vacancy, late/non-payment, and maintenance costs as the property ages.
This guide lays out a structured framework to help you decide whether a property is worth buying for rental investment—and how to set rent and lease terms to control risk.
1) Gross Yield vs. Net Yield: What’s the difference (and why “net” matters)
Gross Yield
Annual rent ÷ purchase price (or property value)
Pros: Fast to calculate
Cons: Often looks “too good” because it ignores costs and risks
Net Yield (Net return / simplified Cap Rate)
(Annual rent – operating expenses – vacancy loss) ÷ total capital invested
This reflects your real take-home return much better.
Key tip: If you use a mortgage, also calculate Cash-on-Cash Return (see Section 4) because your real profit will be affected by loan payments and interest.
2) A Practical Net Yield Formula You Can Actually Use
Step 1: Calculate annual rental income
Monthly rent × 12
Step 2: Subtract vacancy loss
Simple approaches (choose one):
By months vacant per year (e.g., 1 month vacant/year)
→ Vacancy loss = monthly rent × 1By percentage (e.g., reserve 5–10% depending on area/market/property quality)
Step 3: Subtract owner-paid operating expenses
Common items (include what applies to your property):
common area / HOA / juristic fees (condo or gated community)
annual maintenance + major replacements (AC, water pump, water heater, furniture, etc.)
cleaning between tenants + touch-up repairs before re-listing
agent commission (if used) / advertising costs
property insurance (if purchased)
taxes/fees related to ownership or rental income (case-dependent)
miscellaneous supplies / travel / management costs (if self-managing, you should still “value your time”)
Summary formulas
NOI (Net Operating Income)
NOI = Annual rent – Vacancy loss – Operating expenses
Net Yield (%)
Net Yield = (NOI ÷ Total capital invested) × 100
Total capital invested should include more than just the purchase price, such as: transfer-day costs, renovation, and additional furniture/appliances—so your yield isn’t misleading.
3) Worked Example
Assumptions:
Purchase price + transfer-day costs/renovation (total invested) = 3,200,000
Rent = 18,000/month → annual rent = 216,000
Vacancy reserve = 1 month/year → vacancy loss = 18,000
Annual operating expenses (example):
common fees = 24,000
maintenance / replacement reserve = 18,000
cleaning / touch-ups / misc. = 6,000
total expenses = 48,000
Calculations:
NOI = 216,000 – 18,000 – 48,000 = 150,000
Net Yield = (150,000 ÷ 3,200,000) × 100 = 4.69% per year
Observation: If you only look at Gross Yield
= 216,000 ÷ 3,200,000 = 6.75%
Net Yield is clearly lower once you account for real costs—this is exactly why Net Yield matters.
4) If You Have a Mortgage, Also Calculate Cash-on-Cash Return
Net Yield measures return on the property value/total invested, but if you borrow money, your actual cash profit depends on your cash invested and your loan payments.
Cash-on-Cash Return (%)
(NOI – annual debt service/interest paid) ÷ cash you actually invested × 100
Use it to check:
After paying the mortgage, do you have positive monthly cashflow, or do you have to top up every month?
Should you increase the down payment, negotiate a lower price, raise rent, or adjust lease terms?
5) Tenant Risk: What to Check Before You Rent Out
Common tenant risks:
late or missed rent payments
property damage / poor upkeep
early move-out → vacancy + turnover costs
disputes over deposit and property condition
How to reduce risk (systematically):
screen tenants: income/job documents and rental history (as feasible)
set an appropriate security deposit + advance rent level for the property risk
use a written lease specifying: payment date, late fees, lease term, cancellation, repair responsibilities
document move-in condition with photos/videos to reduce deposit disputes
periodic inspections (e.g., every 3–6 months, as agreed in the lease)
6) Repair & Depreciation Risk: The Yield-Killer
Even with a good tenant, major repairs can wipe out profit—especially:
AC/electrical/plumbing issues/leaks
furniture and appliances (if fully furnished)
condo-related issues like water leaks from other units / building systems
older buildings → more frequent small repairs
Recommended defenses:
set aside an annual repair reserve (assume it will happen)
check key systems before renting out (one-time cost, long-term savings)
clearly separate lease terms for “normal wear and tear” vs “tenant-caused damage”
for older properties, increase your vacancy and repair buffers from the start
7) Quick Decision Checklist: “Is This Property Worth Renting Out?”
Answer these 7 questions before buying/adding it to your portfolio:
What is the real market rent (not the rent you hope to get)?
What’s your minimum vacancy reserve (at least 1 month/year?)
Annual common fees / fixed recurring costs?
Upfront repair/furnishing costs (include in total invested)?
Annual repair reserve—do you have enough buffer?
If mortgaged: is Cash-on-Cash positive (do you keep cash after the mortgage)?
Is your tenant system ready: lease, deposit rules, condition evidence?
Summary
To rent out profitably in 2026, focus on real numbers, not “pretty numbers.”
Calculate Net Yield using total capital invested, include vacancy and a repair reserve, and build a solid tenant screening + lease process. This leads to steadier returns and reduces the chance your profit disappears due to predictable risks.
