Rental yield is the #1 metric for any property investor. Yet many beginners confuse gross, net, and net-net yield, which completely skews their analysis. This guide explains all three calculation methods with concrete examples and pitfalls to avoid.
1. Gross Yield: The Basic Calculation
Gross yield is the simplest and quickest calculation. It provides a rough first assessment of a property, but doesn't reflect the reality of your investment.
Gross Yield Formula
📊 Real Example
2-bedroom apartment in Lyon:
• Purchase price: €180,000
• Monthly rent: €750
• Annual rent: €750 × 12 = €9,000
Gross yield = (9,000 / 180,000) × 100 = 5%
Limitations of gross yield:
- Doesn't account for acquisition costs (solicitor fees, agency fees)
- Ignores non-recoverable charges
- Doesn't factor in vacancy periods
- Excludes taxation
⚠️ Warning: Only use gross yield for an initial quick filter between properties. It systematically overestimates actual performance by 1.5 to 3 percentage points. This is the #1 mistake first-time investors make.
2. Net Yield: The Realistic Calculation
Net yield incorporates all charges and fees related to your investment. This is the calculation every serious investor should master.
Net Yield Formula
Costs to deduct:
- Property tax: varies by location (often 1-2 months' rent)
- Non-recoverable service charges: about 20-30% of total charges
- Landlord insurance: €150-300/year
- Management fees: 6-8% of rent if you use an agent
- Maintenance provision: budget about 3-5% of rent
- Vacancy allowance: budget 1 month's rent on average
Total acquisition cost:
- Property purchase price
- Solicitor/notary fees: 7-8% for existing properties, 2-3% for new builds
- Agency fees if applicable
- Initial renovation works
📊 Real Example (same property)
2-bedroom apartment in Lyon:
• Purchase price: €180,000
• Notary fees (7.5%): €13,500
• Total cost: €193,500
• Annual rent: €9,000
• Property tax: -€800
• Non-recoverable charges: -€600
• Landlord insurance: -€200
• Maintenance (4%): -€360
• Vacancy (1 month): -€750
• Net income: €5,290
Net yield = (5,290 / 193,500) × 100 = 2.73%
From 5% gross to 2.73% net—a difference of 2.27 percentage points. This is why gross yield alone is misleading.
3. Net-Net Yield: After Tax
Net-net yield (or after-tax yield) is the final calculation that accounts for your personal tax situation. This is what actually remains in your pocket.
Net-Net Yield Formula
Rental income taxation:
Unfurnished rental
- Rental income taxed at your marginal tax rate
- + social security contributions
- Option to deduct certain expenses (repairs, insurance, etc.)
Furnished rental
- Simplified regime: 50% allowance on receipts
- Real regime: depreciation of property (often €0 tax for 10-15 years)
💡 Tip: The choice of tax regime can transform an average investment into an excellent one. With furnished rental under the real regime, property depreciation often completely neutralizes taxation for many years.
4. Yield Comparison Table
| Type | Calculation | Use Case |
|---|---|---|
| Gross | Rent / Price | Quick initial filter |
| Net | Including costs | Comparing properties |
| Net-Net | After tax | Final decision |
5. What Yield to Target in 2026?
Yield benchmarks vary by market and your strategy:
| Gross Yield | Rating | Where to find? |
|---|---|---|
| < 4% | Low | Paris, Lyon center, Nice |
| 4-6% | Decent | Major cities |
| 6-8% | Good | Dynamic medium cities |
| 8-10% | Very good | Small towns, suburbs |
| > 10% | Excellent (check carefully) | Potential risk areas |
⚠️ Caution: A very high yield (>10%) often hides risks: difficult neighborhood, deteriorated property, high vacancy, problematic tenants. Always analyze the context before getting excited about an attractive rate.
6. Pitfalls to Avoid
- Underestimating costs: Budget generously, especially for maintenance provisions
- Ignoring vacancy: Even in tight markets, budget 1 month/year
- Forgetting solicitor fees: They represent 7-8% for existing properties
- Neglecting taxation: It can take 30% of your income
- Comparing gross vs net: Only compare yields calculated the same way
Summary
Rental yield comes in three levels: gross (for initial filtering), net (for comparing properties), and net-net (for final decisions). The difference between gross and net can exceed 2 points, which radically changes an investment's attractiveness.
Before any purchase, systematically calculate net yield including all costs. And don't forget that yield is just one criterion among many: location, capital appreciation potential, and property quality also matter.
Related Articles
- 5 Mistakes First-Time Property Investors Make
- Complete Guide to Rental Property Investing for Beginners
- Guide: Evaluating a Neighborhood Before Buying
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