Understanding Gross Vs Net Rental Yield (With Calculator Examples)
In commercial real estate, yield tells investors more than any brochure ever could. It defines how efficiently a property converts value into income, and it’s often the first filter in assessing any potential acquisition.
However, not all yields are created equal. Gross and net rental yields can produce dramatically different figures for the same property, depending on how outgoings, recoveries and vacancy are handled. The distinction is simple in concept but critical in practice, and it separates well-informed investors from those relying on headline numbers.
Gross rental yield measures total rental income before any costs are deducted. It’s calculated using:
- Gross Yield = Annual Rent ÷ Property Value × 100
It offers a quick snapshot of income potential, which is useful for quick comparisons across markets or when scanning multiple assets.
Net rental yield, by contrast, removes the landlord’s expenses from the equation, revealing the property’s true earning capacity. Here’s the formula:
- Net Yield = ((Annual Rent − Landlord Expenses) ÷ Property Value) × 100
Net yield is the figure that tells the real story, i.e., how much the asset actually returns after you pay what it costs to own and operate it.
For investors comparing net vs gross rental yield, clarity on expenses is everything. Outgoings in commercial property can vary widely depending on lease type, building class and tenant covenant strength.
Common landlord expenses typically included in net yield calculations:
- Council rates and land tax (where applicable)
- Insurance premiums
- Maintenance and repairs not covered by the tenant
- Property management fees
- Strata levies or body corporate fees
- Utilities not reimbursed by the tenant
Not usually included:
- Stamp duty and legal fees (considered acquisition costs)
- Interest payments or financing costs (part of ROI modelling, not yield)
- Income tax or depreciation (handled separately in after-tax analysis)
- Lease structure also plays a defining role. A triple-net lease, for instance, transfers most outgoings to the tenant, often resulting in a near-identical gross and net yield. By contrast, a gross lease may leave the landlord covering significant recurring costs, materially reducing the effective yield.
- Vacancy periods and rent-free incentives also shape the net figure. Even a single month of downtime or an extended incentive package can trim yield by half a per cent or more. Investors model these scenarios upfront rather than being surprised at settlement.
A rental yield calculator turns what could be a complex financial exercise into a clear, repeatable process. Whether you’re assessing a potential acquisition or stress-testing an existing asset, the principle is the same: accurate inputs deliver meaningful insight.
Modern calculators and spreadsheet models allow investors to test variables instantly, compare scenarios and understand how costs, rent and vacancy shape both gross and net yield. The key is knowing how to interpret those results, not just generate them.
Step 1: Enter the property’s value
Use the purchase price or the latest market valuation. For accuracy, include acquisition adjustments such as GST where applicable for commercial transactions.
Step 2: Input annual rental income
Enter effective rent, which is the true annualised rent after accounting for incentives, rent-free periods or rent abatements.
Step 3: Add landlord expenses (for net yield)
List only the landlord’s share of expenses. If the lease provides partial recoveries, deduct only unrecovered outgoings.
Step 4: Apply a vacancy assumption
Even prime properties carry downtime risk. A conservative 2–5 per cent vacancy allowance builds resilience into the calculation.
Step 5: Review results
The calculator will return two key figures: gross yield and net yield. The gap between them quantifies the drag created by ownership costs: a simple but powerful insight into the asset’s true performance.
Step 6: Test sensitivity
Adjust rent, expenses or vacancy to see how each variable impacts yield. Professional investors always run base, best, and downside cases before moving forward.
By understanding these mechanics, investors can use even the most basic calculator to model returns accurately, without relying on inflated or incomplete yield figures.
These examples illustrate how gross and net rental yield diverge once costs, recoveries and vacancy are applied. The goal is to reveal the financial truth behind income assumptions and the discipline professional investors rely on.
Example 1: Industrial warehouse (triple-net lease)
- Purchase price: $3 million
- Annual rent: $210,000
- Landlord expenses: $0 (tenant pays all outgoings)
- Vacancy allowance: 0 %
Gross yield: (210,000 ÷ 3,000,000) × 100 = 7 %
Net yield: Same result – 7 %
Interpretation:
In a true triple-net lease, the landlord bears virtually no operating costs: tenants cover rates, insurance and maintenance. As a result, gross and net yields converge, which may support income and limited management oversight.
However, this structure also commands a yield premium in reverse. Prices are higher, and yields compress because investors pay for covenant strength and risk mitigation. In institutional markets, this margin can narrow to under 25 basis points. The trade-off is clear: lower yield, lower volatility and stronger capital preservation over the asset’s life cycle.
Example 2 – Retail tenancy (partial recoveries)
- Purchase price: $2.8 million
- Annual rent: $230,000
- Landlord expenses: $45,000 (rates, maintenance, partial outgoings recovery)
- Vacancy allowance: 1 month (≈ 8 % vacancy)
Gross yield: (230,000 ÷ 2,800,000) × 100 = 8.21 %
Net yield: ((230,000 – 45,000) ÷ 2,800,000) × 100 = 6.6 %
Interpretation:
The 1.6-point gap between gross and net yield highlights how even moderate unrecovered expenses and brief vacancies can significantly erode performance. In retail, this spread isn’t an anomaly, but a structural feature of the asset class.
Unlike industrial or logistics stock, retail tenancies often operate on semi-gross or partially recovered leases, meaning landlords remain responsible for a proportion of outgoings, like marketing levies, maintenance or land tax. Combine that with incentives, fit-out contributions and shorter WALEs, and the effective income story changes significantly.
Professional investors anticipate this spread and price the risk into their acquisition models, either by setting sharper yield targets or increasing their hurdle rates. The discipline lies in knowing that a retail asset showing a 6.5% net yield remains attractive, but only if the covenant, location and trade performance justify the operational exposure.
Example 3 – Office floor (short WALE, incentives)
- Purchase price: $1.8 million
- Headline rent: $135,000
- Effective rent (after incentives): $120,000
- Landlord expenses: $25,000
- Vacancy allowance: 10 %
Gross yield: (135,000 ÷ 1,800,000) × 100 = 7.5 %
Net yield (effective): ((120,000 – 25,000) ÷ 1 800 000) × 100 = 5.3 %
Interpretation:
Here, the difference between gross vs. net rental yield is pronounced. It’s a textbook case of how headline rent can disguise risk. Rent incentives, short WALEs and tenant turnover compress accurate returns even when the gross yield appears strong.
To be fair, this pattern is common in the office sector. Incentive structures, such as fit-out contributions, rent-free periods and leasing commissions, reduce effective income and delay stabilisation. Shorter lease terms compound the issue, introducing re-leasing costs and downtime that can slice 150–200 basis points off yield performance.
For investors, remember that high advertised yields often reflect higher risk exposure, not superior returns. Evaluating effective rent and weighted lease expiry reveals the property’s real earning profile.
More than a box-ticking exercise, understanding net vs gross rental yield is the foundation for disciplined acquisition and portfolio growth. Yield exposes efficiency, risk and lease strength in one figure, but only when it’s read correctly.
At Costi Cohen, yield modelling forms part of every acquisition brief. Our team dissects income streams, adjusts for incentives and tests sensitivity across interest-rate and vacancy scenarios. We also assist with lease reviews and building-inspection coordination, so clients can validate performance before they buy.
For investors ready to translate yield data into strategy, Costi Cohen delivers clarity, confidence and access to potential opportunities across Australia. Reach out to discuss your next acquisition.
Disclaimer: In any business venture, seek professional financial, taxation and legal advice before acting on yield calculations or investment decisions.
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