Rental yield calculator:
what your rent really earns on the price

What rental yield tells you

Rental yield is the rent a property earns in a year as a percentage of what the property costs. A ₹90 lakh flat that rents for ₹25,000 a month has a rental yield of 3.33%, which says that each year the rent equals about 3.3 paise for every rupee you have in the flat.

Think of it as the price-to-rent ratio turned upside down. A 3.33% yield is the same thing as a price of 30 times annual rent. Many investors find the yield easier to compare with interest rates, which is why the percentage form is more popular.

It is the quickest way to compare a rented flat with a fixed deposit, another flat or a different city. It does not include price growth, which is often the bigger part of the return in Indian residential property, so look at the two together.

It is also a useful reality check on listings. If an agent says a flat gives "good returns", ask for the monthly rent in rupees and divide it out. A few seconds of arithmetic turns a vague promise into a figure you can compare.

There are two versions you should always separate: gross yield, which uses rent only, and net yield, which subtracts the costs of owning and letting the property.

Gross and net rental yield formulas

1. 1Work out annual rent: monthly rent × 12.
2. 2Divide by the price for the gross yield.
3. 3Subtract a vacancy allowance and the yearly costs.
4. 4Divide the remainder by the total purchase cost for the net yield.

Worked example: a ₹90 lakh two-bedroom flat

Notice the gap: a full percentage point of yield disappears between the headline figure and what you actually keep. That gap is the reason serious buyers calculate both.

Comparing flats and working back to rent

Use rows like these to sort your shortlist before you visit anything. Two flats at the same price can differ by half a percentage point of yield, which on ₹90 lakh is ₹45,000 of rent every year.

The smallest flat gives the highest gross yield here, which is a common pattern: smaller units tend to rent for more per rupee of price. Bigger homes often rely more on price growth for their return.

You can also reverse the calculation to see what rent a target needs. For a ₹90 lakh flat, a 4% gross yield needs ₹30,000 a month, and 5% needs ₹37,500.

What moves a rental yield over time

A yield is a snapshot. The price you paid is fixed, but rent usually rises, which means the yield on your original cost drifts upwards even when nothing else changes. Many leave-and-licence and lease agreements include an annual escalation; check the clause in yours.

Assume a 5% annual escalation on the ₹25,000 rent, applied each year. In year 2 the rent is ₹26,250, in year 3 ₹27,563, in year 4 ₹28,941 and in year 5 ₹30,388 a month. That lifts the gross yield on the original ₹90 lakh from 3.33% in year 1 to about 4.05% in year 5.

• Rent growth raises the yield on cost over time. A new buyer pays the current price, so their yield starts back at today's level.
• Vacancy and repairs can pull the net yield down in any year.
• A tenant who stays long saves you letting fees and empty months, so a modest rent from a stable tenant can beat a higher rent that turns over often.

How to read the number

As a rough rule of reading, a gross yield below the interest on a safe deposit means you are buying mostly for growth, and a gross yield well above it usually reflects a risk worth understanding: an older building, a thin tenant market or a location with weak price growth.

A yield has to be set against the alternatives. Check what a fixed deposit or a debt fund is offering today and remember that rent is taxable, can be vacant and needs upkeep, while a deposit does not.

The total return from a rented property is roughly its net yield plus price growth. If the flat above grows 5% a year (an assumption, not a forecast), the total is about 2.33% + 5% = 7.3% a year before tax and before any loan cost.

Tax matters too. As an illustration, assume 30% tax on the net rental income of ₹2,24,500: that leaves ₹1,57,150, a post-tax yield of about 1.63% on ₹96,30,000. Actual tax depends on your slab, deductions and loan interest, so check the current rules or ask a tax adviser.

If you buy with a loan, compare the net yield with the loan rate. A net yield of 2.33% against a home loan at 8.5% means the rent covers only a small part of the interest. The rest is paid from your income, and growth in price has to make up the difference.

Mistakes people make with rental yield

• Quoting the gross yield as if it were what you earn. Net yield is the figure that reaches your account.
• Using the asking rent. Use rent that similar flats in the building have actually achieved.
• Forgetting vacant months. Even one empty month cuts the year's rent by 8%.
• Leaving out stamp duty and registration from the cost base for net yield.
• Mixing yield and cap rate. Both are fine, but rent-over-price and NOI-over-value are different measures of the same property.

Another gap is the cost of getting the property ready. Painting, minor furnishing and the first set of repairs are easy to forget, but they belong in the cost base. A flat that needs ₹1,50,000 of work before it can be let has a lower net yield than the same flat bought ready.

For commercial property, the cap rate guide shows how net operating income is used instead. For a combined view of cost, income and sale value, use the ROI guide.