How to Calculate the Yield on a Property, Step by Step

May 19, 2026 · 5 min read

Yield is the universal language of real estate investment. But calculating it properly — not just reading the figure in the listing — requires understanding what is behind each number. This guide explains it step by step, with a practical example.

Step 1: gross yield

The simplest formula: Gross yield (%) = (Total annual rent / Purchase price) × 100.

Example: an office building costing €1,000,000 that generates €60,000 in annual rent has a gross yield of 6%. This is useful as a quick initial filter, but insufficient for making decisions.

Step 2: identify all owner expenses

To arrive at net yield, the following costs must be deducted: council tax (IBI), building insurance, service charges where applicable, estimated annual maintenance, management fees if delegated, and a vacancy allowance — typically between 3% and 8% of annual rent, depending on the market and asset type.

Step 3: net yield

Net yield (%) = ((Annual rent − Annual expenses) / Purchase price) × 100.

Continuing the example: if expenses total €9,000 per year, the net rent is €51,000 and the net yield is 5.1%. On €1,000,000, the difference from the gross yield amounts to €9,000 per year that the investor expected to receive and will not.

Step 4: the real purchase price includes acquisition costs

A frequent error is calculating yield against the list price without including acquisition costs. In Spain, a purchase subject to ITP (Property Transfer Tax) carries the tax itself (between 6% and 10% depending on the Autonomous Community; in Aragon, 8%), notary and land registry fees (approximately 0.5%–1%), and intermediary fees where applicable. On a €1,000,000 asset, acquisition costs add approximately €90,000–100,000. The real yield must be calculated on the total investment cost.

Step 5: the cap rate

The cap rate (capitalisation rate) is the most widely used metric in income-asset transactions: Cap rate (%) = NOI / Market value of the asset.

Where NOI (Net Operating Income) is the net operating income: total revenues less operating expenses, before debt and depreciation. The cap rate allows assets of different prices to be compared on a like-for-like basis and, in more complex transactions, allows the asset value to be derived from the cash flow it generates and the prevailing market cap rate.

What is a reasonable yield to expect?

This depends on asset type, location and market conditions. As a reference in the current Spanish market: prime retail in major cities, 3.5–5%; offices in well-located secondary cities, 5–7%; industrial and logistics, 5–6.5%; mixed-use buildings in mid-sized cities, 5–7%. Below 4% net, the investment competes directly with fixed income without the illiquidity risks inherent in real estate.