In this article
Rental yield is the yearly rent as a percentage of what the property costs. It is the quickest way to compare a flat that earns rent with a fixed deposit, a fund or another flat. There are two versions: gross yield uses the full rent, and net yield first subtracts the costs of owning the property.
The formulas, step by step
- 1Work out the yearly rent₹20,000 × 12 = **₹2,40,000**.
- 2Gross yield₹2,40,000 ÷ ₹60,00,000 × 100 = **4.00%**.
- 3Subtract the yearly costs₹2,40,000 − ₹30,000 = **₹2,10,000** net income.
- 4Net yield and payback₹2,10,000 ÷ ₹60,00,000 = **3.50%**, and ₹60,00,000 ÷ ₹2,10,000 = **28.6 years**.
The tool returns four numbers: net yield, gross yield, net yearly income and payback years.
What counts as a cost
- Property tax and society charges, paid by the owner and not by the tenant.
- Repairs and painting between tenants. Setting aside a small share of the rent each month smooths the bumps.
- Vacancy, the months between tenants when you earn nothing.
- Agent or brokerage fees for finding a new tenant.
- Income tax on the rent, if you want a true after-tax yield.
How rent changes the yield
| Monthly rent | Yearly rent | Net income | Gross yield | Net yield |
|---|---|---|---|---|
| ₹15,000 | ₹1,80,000 | ₹1,50,000 | 3.00% | 2.50% |
| ₹20,000 | ₹2,40,000 | ₹2,10,000 | 4.00% | 3.50% |
| ₹25,000 | ₹3,00,000 | ₹2,70,000 | 5.00% | 4.50% |
| ₹30,000 | ₹3,60,000 | ₹3,30,000 | 6.00% | 5.50% |
| ₹35,000 | ₹4,20,000 | ₹3,90,000 | 7.00% | 6.50% |
All rows use a ₹60 lakh price and ₹30,000 of yearly costs. Each ₹5,000 of extra monthly rent adds 1 percentage point to the net yield.
A rent increase flows straight into net yield because the costs stay the same. A flat at ₹35,000 a month would give a net yield of 6.5% here.
Payback years in plain words
Payback years tells you how long the rent alone would take to repay the price: ₹60,00,000 ÷ ₹2,10,000 is about 28.6 years. It ignores price changes, so it is not a forecast. It does help you see when a high price compared with the rent makes a flat a long-term bet rather than an income source.
A yield around 3% to 4% is common for residential flats in many Indian cities, but it varies a lot by city, locality and building type.
Yield against your loan rate
If you borrow to buy, compare the net yield with the loan rate. Suppose you finance 80% of the flat, which is ₹48,00,000, at 8.75% a year. The interest alone is about ₹4,20,000 a year, while the net rent is ₹2,10,000.
- Gross rent ₹2,40,000
- Less costs ₹30,000
- Before income tax
- 80% of ₹60 lakh = ₹48,00,000
- 8.75% a year, interest part only
- Principal repaid is extra
The rent covers about half of the interest. You top up the rest from your salary and hope the price rises. This is called negative carry.
Rent is only half the return
The total return on a property is the yield plus the change in price. If a flat yields 3.5% net and its price rises 5% a year, the combined return is roughly 8.5% before tax and loan costs. If the price falls, it can drag the total below zero even when the rent keeps coming. Always look at both parts.
Checklist before you buy to rent
- Ask local brokers for real rents on similar flats, not just the asking price.
- List every yearly cost, including tax, repairs and at least one empty month.
- Calculate gross and net yield with the calculator.
- Compare the net yield with your loan rate and with a deposit.
- Test a worse case: run the numbers with 10% lower rent and two empty months.
Questions people ask
How do I calculate rental yield?
Divide the yearly rent by the property price and multiply by 100. For rent of 20,000 a month on a 60 lakh flat, the yearly rent is 2,40,000, so the gross yield is 4%.
What is the difference between gross and net rental yield?
Gross yield uses the full rent. Net yield subtracts yearly costs such as tax, repairs and vacancy first. Net yield is the more realistic figure.
What is a good rental yield?
It depends on the city and the type of property. Many residential flats in Indian cities yield about 2% to 4% gross, while commercial property can yield more. Compare it with the loan rate and with deposit rates.
What does payback years mean?
It is the price divided by the net yearly rental income, and shows how many years of rent would be needed to earn back the purchase price. It ignores price changes and tax.
Does rental yield include price appreciation?
No. Yield is only the income from rent. The total return is the yield plus the change in the property's value, minus costs such as loan interest.
Can I use the calculator for a commercial property?
Yes. Enter the price, the monthly rent and your yearly costs. The Rental Yield Calculator works for any property that earns rent.