Definition
Rental Yield
Rental yield is the annual rent a property earns expressed as a percentage of its value, measuring how much income the asset generates relative to its price.
Gross rental yield is annual rent divided by property value; net yield deducts costs like maintenance, property tax, insurance and vacancy. In India, residential rental yields have generally been low — often a small percentage — meaning much of a home's return depends on price appreciation rather than rent, while commercial property typically yields more.
A low rental yield signals that a property is expensive relative to the income it produces, a useful check against overpaying in a hot market. Comparing the net yield with what the same money could earn elsewhere (and the cost of a home loan) helps decide whether buying to let actually makes financial sense.
Related terms
- Opportunity CostOpportunity cost is the value of the next-best alternative you give up when you choose to use money (or time) one way rather than another.
- REIT vs Physical PropertyThis compares investing in a Real Estate Investment Trust (REIT) — a listed vehicle owning income-producing real estate — against buying physical property directly.
- Lease vs RentLease and rent both grant the use of a property for payment, but a lease is typically a longer, fixed-term contract while rent (a leave-and-licence) is usually shorter and more flexible.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.