A rental property advertised with an attractive yield can produce a very different return for its owner. The gap comes from what the yield figure leaves out.
Gross yield ignores every cost
Gross yield divides annual rent by purchase price. It assumes the property is occupied continuously and that the owner receives every unit of rent charged.
Management fees, maintenance, insurance, letting costs and local property taxes all reduce what actually arrives, and none of them appear in the calculation.
Net yield subtracts these before dividing, which produces a considerably lower figure and a far more useful one for comparison between properties.
Vacancy costs more than the missing rent
An empty property produces no income while continuing to incur insurance, taxes, utilities and any financing cost, so the loss exceeds the rent forgone.
Turnover between tenants also triggers cleaning, repairs and letting fees, which arrive as a lump at exactly the point income has stopped.
A property with high turnover can therefore underperform one with a lower headline rent and a stable long-term tenant.
Maintenance is lumpy rather than annual
Roofs, heating systems and windows fail rarely and expensively. Budgeting a small annual figure understates the cost in the year one of them is replaced.
Spreading expected major works across their useful life gives a more accurate ongoing charge, in the same way a business depreciates an asset.
Owners who omit this reserve report strong returns for several years and then a single year that removes much of the accumulated gain.
Financing changes both return and risk
Borrowing against a property amplifies the return on the owner's own capital when the property performs, and amplifies the loss when it does not.
Interest is a cost against rental income, so a rise in rates can turn a positive cash flow negative without any change in the rent or the property.
Comparing a leveraged return with an unleveraged yield mixes two different measures, which is a frequent source of overstated performance claims.
Capital value is the larger and later component
Total return combines rental income with the change in the property's value, and over long holding periods the capital component often dominates.
That component is unrealised until sale, and selling carries transaction costs, taxes and timing risk that rental income does not.
Yield describes the income stream and says nothing about the value of the asset producing it, which is why the two figures should be assessed separately rather than blended.