Investment Guide
Rental Yield & Cash Flow
Gross yield is the headline number agents quote, but net cash flow after real costs is what actually determines whether a rental property is a good investment. Here's the difference and where it usually gets missed.
Reviewed by Glenice Toh
Gross Yield Is A Starting Point, Not An Answer
Gross yield is calculated as annual rental income divided by purchase price. It's useful for a first comparison across properties, but it says nothing about what you actually keep after costs — which is the number that determines whether the investment works for you.
What Net Yield Actually Subtracts
Costs That Turn Gross Yield Into Net Yield
- Property tax, which is charged at higher rates on non-owner-occupied residential property than owner-occupied.
- Maintenance fees (for condos) or Service & Conservancy Charges (for HDB rentals), plus repairs and periodic upgrading costs.
- Financing costs — mortgage interest is the single biggest drag on net yield for a leveraged purchase.
- A realistic vacancy allowance between tenancies, rather than assuming full occupancy every year.
- Agent commission on securing each new tenancy, typically borne by the landlord for residential leases.
Cash Flow Depends On Financing, Not Just Yield
Two units with identical gross yield can produce very different cash flow depending on how much is financed and at what rate. A highly leveraged purchase can turn a healthy gross yield into negative monthly cash flow once mortgage interest is deducted, especially in a higher interest rate environment.
Where This Calculation Usually Breaks
Frequently Asked Questions
Frequently Asked Questions
How is rental yield calculated?
Gross yield is annual rent divided by purchase price. Net yield subtracts costs such as maintenance, property tax and financing, which is the more useful figure.
Is a higher gross yield always a better investment?
Not necessarily — net cash flow after financing, tax and vacancy is a more reliable measure than gross yield alone.
Should I factor in capital appreciation when assessing a rental property?
It's reasonable to consider, but the cash flow should stand on its own first; appreciation isn't guaranteed and shouldn't offset a negative cash flow.
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Financing structure, vacancy assumptions and tax treatment all change the real return. Run the numbers before you commit.
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