Guides & InsightsMoney & ownership
Gross yield, net yield and cash return are not the same
Keep the denominator and omitted costs visible when comparing property investment scenarios.
Short answer
Gross yield divides annual rent by purchase price. Net operating yield subtracts stated operating costs before dividing by price. Cash-on-cash return compares pre-tax annual cash flow with the cash invested. Each answers a different question.01
Gross yield: a quick property-level ratio
Annual rent divided by purchase price is easy to compare, but it ignores vacancy, management, maintenance, insurance, service charges, finance and acquisition costs. It is a starting ratio, not a return forecast.
02
Net operating yield: make costs explicit
Subtract the operating costs included in your model, then divide net operating income by purchase price. State whether vacancy, management and major works are included so two percentages use comparable assumptions.
03
Cash-on-cash: financing changes the denominator
Pre-tax cash flow after operating costs and debt service can be compared with the cash invested. Leverage may increase or reduce this percentage and introduces refinancing and payment risk.
- Keep tax outside unless modelled explicitly.
- Do not treat capital growth as guaranteed.
- Run downside assumptions for rent, vacancy, rates and repairs.
Sources and review
Check the original guidance
This method guide explains transparent arithmetic and links directly to the versioned Greathome calculator. It makes no claim that a third-party market dataset is connected.
Manual launch edition. Material claims are linked to the sources above. Time-sensitive rules must be checked again at the next review date or when an official source changes.