Gross yield is the annual income an investment produces divided by its price, expressed as a percentage, with no expenses subtracted. The formula is the same across asset types: annual income divided by asset price, times 100. A rental property bought for $500,000 that collects $40,000 a year in rent has a gross yield of 8%. The number tells you nothing about profitability, but it is the fastest way to compare two income-producing assets before you dig into costs.
The Formula and What Goes in Each Part
Gross Yield = (Annual Income ÷ Asset Price) × 100.
The numerator is every dollar the asset puts in your pocket over a year, with nothing subtracted. For a bond, it’s the annual interest. For a rental, it’s the total rent collected. For a stock, it’s the dividends paid. Management fees, repairs, taxes, insurance, and vacancies all stay out of this number.
The denominator is either what you paid for the asset or its current market price, and the choice depends on the question you’re asking. Original purchase price measures the return on the money you actually spent. Current market price shows a prospective buyer what yield they’d get buying today. Both are legitimate. Mixing them in a comparison produces nonsense.
Take a commercial building bought for $1,000,000 that collects $80,000 in annual rent. Dividing $80,000 by $1,000,000 and multiplying by 100 gives an 8% gross yield. If the market value has since risen to $1,200,000, a new buyer’s gross yield on the same rent is about 6.7%. Same income, different denominators, very different number.
Getting the Denominator Right
For real estate, the denominator isn’t just the price on the contract. The IRS includes certain settlement and closing costs in the basis of your property, and those costs belong in your yield denominator too if you want a true figure.
Costs that increase your basis include title-related fees (abstract fees, owner’s title insurance, legal fees for title search and deed preparation); transfer and recording costs (transfer taxes, recording fees, surveys); and seller obligations you absorb (back taxes, unpaid assessments, or sales commissions the seller owed).
Costs that do not increase your basis include loan-related charges like points, mortgage insurance premiums, lender-required appraisal fees, and loan assumption fees.1Internal Revenue Service. Publication 551 – Basis of Assets
On a $500,000 property, qualifying closing costs can easily add $10,000 to $25,000. Using a $500,000 denominator when you really spent $520,000 overstates your gross yield by about half a percentage point. That error compounds quickly across a shortlist of properties.
Gross Yield by Asset Type
Bonds
For a bond, gross yield at issue is the coupon rate: the annual interest payment divided by face value. A bond with a $1,000 face value and a 5% coupon pays $50 a year, giving a 5% gross yield at par.
On the secondary market the price moves. If you buy that same bond for $1,100, your current yield drops to about 4.55%, because the $50 payment is now being divided by a higher price. For bonds purchased after issuance, current yield is the gross yield figure that actually reflects what you paid. Neither coupon rate nor current yield accounts for the gain or loss at maturity; that’s the job of yield to maturity.
Real Estate
For a rental, gross rental yield is total annual rent divided by the purchase price. A $300,000 property pulling $30,000 a year in rent runs a 10% gross rental yield. In 2026 these figures vary enormously by location. Some lower-cost markets show gross yields above 10%, while high-cost areas in California and Hawaii can dip below 4%.2ATTOM. Single-Family Rental Returns Dip Across Much of Nation A high gross yield in a declining market isn’t automatically better than a low gross yield in a market with strong appreciation. The number only speaks to current rental income relative to price.
Lease structure changes how much of the gross yield you keep. Under a triple net (NNN) lease, the tenant pays property taxes, insurance, and maintenance on top of base rent. Base rent is lower, but landlord expenses are minimal, so gross and net yields stay close. Under a gross lease, the landlord bundles everything into one rent figure. The headline rent looks higher, but the landlord absorbs all operating costs, and the gap between gross and net widens considerably. When comparing two commercial properties, the lease structure matters as much as the rent number.
Dividend Stocks
For a stock, gross yield shows up as the dividend yield: annual dividends per share divided by the current share price. A stock trading at $50 that pays $2.50 a year in dividends has a 5% gross dividend yield. This figure doesn’t account for brokerage commissions or taxes. Qualified dividends are taxed at long-term capital gains rates; non-qualified dividends are taxed as ordinary income at your marginal rate. Two stocks with identical gross dividend yields can produce different after-tax income depending on whether their dividends qualify.
Gross Yield, Net Yield, and Cap Rate
Gross yield is a screening tool. Net yield is a decision-making tool. The difference between them is everything you spend to own and operate the asset.
Net yield uses the same annual income and the same asset price, but subtracts ownership costs from the income. For a rental, those costs include maintenance and repairs, property insurance, utilities you cover, management fees, and property taxes. The IRS allows deductions on Schedule E for ordinary and necessary expenses including taxes, interest, repairs, insurance, management fees, agents’ commissions, and depreciation.3Internal Revenue Service. Instructions for Schedule E (Form 1040) A property manager typically takes 5% to 12% of gross rent collected. A property advertising a 10% gross yield that costs 4% of its value to operate and insure leaves you closer to 6% before income taxes.
Capitalization rate, or cap rate, sits between the two. It divides net operating income (gross rent minus operating expenses, before debt service and income taxes) by the property price. If someone quotes a “7% return” on a property, ask whether that’s gross yield, cap rate, or net yield. The three numbers can differ by several percentage points on the same property.
Adjusting for Vacancy
Gross yield assumes every unit is occupied and every tenant pays on time, year-round. That rarely holds. Effective gross income corrects for this: take potential gross rent, add non-rental income like parking fees, and subtract estimated vacancy and credit losses.
A healthy vacancy rate for residential rental property generally runs under 6% to 7%, though it swings sharply by market and property type. A single vacant month on a single unit can cut that unit’s annual rental income by more than 8%. If your gross yield used the fully occupied rent figure, your actual yield will run below it.
The practical move is to build a vacancy assumption into the calculation. If comparable properties in your market run a 5% vacancy rate, reduce potential rent by 5% before computing yield. The result isn’t a textbook gross yield, but it’s a number you can plan around.
Where Gross Yield Misleads
Gross yield is useful as a first pass. It is not reliable as a final answer. The common traps:
- It hides operating costs. A property with a 12% gross yield and heavy deferred maintenance can net less than a turnkey property at 7%.
- It ignores appreciation and depreciation. Gross yield captures income only, not what the asset is doing in value, which is often the larger part of total return.
- It assumes full occupancy. A 10% figure based on market rent means little if the property sits empty for three months.
- It’s easy to manipulate. Sellers can inflate gross yield with a below-market asking price in the denominator or above-market rent assumptions in the numerator. Verify both.
- It doesn’t reflect financing costs. If you borrow to buy, the mortgage payment is a real outflow that gross yield completely ignores. Two investors buying the same property with different down payments post the same gross yield but very different cash-on-cash returns.
Gross yield earns its place as a filter. It lets you scan a list of options in minutes and set aside the ones that don’t generate enough top-line income to be worth deeper work. Every serious evaluation moves past it quickly. The investors who get burned are the ones who stop at gross yield and mistake revenue for profit.