Investing
Gross Yield vs Net Yield: Comparing Rental Properties Properly
A yield is only comparable when you know what income, which costs and which capital base it uses. Using one hypothetical €200,000 apartment, this guide shows why the same property can be presented at 7.2%, 6.6%, 4.8% or 4.27%.
Published · 4 min read
By Costa de Oro · Real-estate agency · Marbella & Costa del Sol
Why a single yield figure can mislead
Advertisements often quote a “yield” without saying what it measures. One figure may divide contractual rent by the asking price; another may deduct some running costs and divide by the price plus purchase costs. Both are called yield, yet they answer different questions.
Gross rental measures used in market statistics compare rent with price and, by design, leave out expenses and taxes. That makes them useful for broad comparison, but not for judging what an individual owner keeps. Before comparing two properties, write down the income basis, the costs deducted and the denominator for each.
The worked example used in this guide
These inputs are invented for teaching purposes. They are not Costa del Sol market data, an agency valuation or a promised return. The €25,000 transaction and setup budget is an illustrative allowance, not a statutory percentage.
- Purchase price: €200,000; transaction and setup costs: €25,000; total project cost: €225,000
- Contractual rent: €1,200 per month = €14,400 scheduled annual rent
- One vacant month, remaining rent paid: €13,200 collected
- Operating costs €3,600 a year: IBI €600, community €1,200, insurance €300, routine maintenance €600, management €900 (illustrative fixed quote)
- Net operating income (NOI): €13,200 − €3,600 = €9,600
Gross yield: scheduled and collected
Formula: gross yield = annual rent ÷ stated capital base × 100. On the purchase price, scheduled gross yield is €14,400 ÷ €200,000 = 7.2%. If you allow for one vacant month, collected gross yield is €13,200 ÷ €200,000 = 6.6%.
Neither figure deducts any cost. Always label which rent you used. A scheduled rent assumes full occupancy and full payment; a collected rent reflects your vacancy assumption. Do not deduct vacancy twice by also inflating operating costs for empty months.
Net operating yield and the denominator
Formula: net operating yield = (collected rent − operating costs) ÷ stated capital base × 100. On price: €9,600 ÷ €200,000 = 4.8%. On all-in project cost: €9,600 ÷ €225,000 = 4.27%. The second figure is lower because it includes the money you actually had to spend to acquire and prepare the property.
State the scope as well: this is pre-finance and pre-income-tax. IBI is included because it is a recurring property tax of ownership; income tax on the rental result is a separate calculation. Mortgage payments, depreciation and capital works are not operating costs and belong in other analyses.
Common definition errors to avoid
Net yield is defined inconsistently in advertisements and projections. Ask for the calculation line by line rather than accepting the headline percentage.
For short-term letting, build income from lawful bookable nights × expected occupancy × realised nightly rent, then deduct platform, management, cleaning and utility costs once each. Confirm permission to operate before relying on that model.
- Mixing asking price in one comparison with all-in cost in another
- Treating a tenant deposit as income
- Counting mortgage principal or interest as an operating cost
- Including depreciation, a non-cash tax concept, in cash operating costs
- Leaving out community fees, insurance or management because the owner “will do it”
- Using peak-season nightly rates for the whole year
A comparison checklist
Put every candidate property into the same table before deciding. Differences in yield often come from definitions, not from the properties.
When a figure depends on tax, ask a qualified adviser; deductible costs and rules differ between residents and non-residents and with the use of the property.
- Same denominator for every property (price, or all-in project cost)
- Scheduled and collected rent shown separately
- Actual IBI receipt, community budget and insurance quote obtained
- Management quote stated as fixed or percentage
- Finance and income tax excluded from yield and analysed separately
- Scope written next to every percentage
Common questions
Is a higher gross yield always better?
No. A higher gross figure may hide higher community fees, management costs or vacancy. Compare net operating yield on the same denominator.
Should purchase costs be in the denominator?
Use price when comparing with advertised figures and all-in project cost when judging your own capital. State which one you use and keep it consistent.
Does net yield include income tax?
Not in this guide. Net operating yield here is before financing and before income tax, because tax depends on residency and individual circumstances.
