You might be wondering how to calculate NET yields and exactly how much money you will be getting from renting out the properties you buy.
If you have checked the properties listed on our marketplace, you may have noticed that we have written Net Yield: 6.3% or Net Yield: 5.9% next to the title.
This basically means the cash flow yield of the property pre-tax. Assuming the property costs $500,000 and the net yield is 5.0%, then you will earn $25,000 per year. If the property costs $1,000,000 and the net yield is 6%, you can expect to get $60,000 per year or $5,000 per month.
Gross Yields vs. Net Yields Calculation
- Gross yields are yearly gross revenue from short-term or long-term rentals divided by the purchase price.
- NET yields are yearly gross revenue minus expenses divided by the purchase price.
Here’s an example of a 2-bed apartment in Turks and Caicos that is rented out short-term. The property costs $2,750,000 to buy and makes $233,000 per year from bookings on average.
Calculating gross yield:
- $233,000 (annual rental income) / $2,750,000 (buy price) = 0.084
- 0.084 = 8.4%
Calculating net yield:
- $233,000 (annual rental income) minus $117,500 (expenses, including rental management) / $2,750,000 (buy price) = 0.042
- 0.042 = 4.2%
If you buy this property as an investment and would like to run it passively, you would expect to get a yearly return of 4.2% pre-tax, which is $115,500 in dividends. Keep in mind that real estate prices usually appreciate in demanded locations, increasing around 5% per year. If you add 5% on top of the 4.2% yield, you are getting 9.2% pre-tax yields per year.
Let’s take another example in Mexico, Cancun (3-bed villa):
Calculating gross yield:
- $95,000 (annual rental income) / $645,000 (buy price) = 0.147
- 0.147 = 14.7%
Calculating net yield:
- $95,000 (annual rental income) minus $38,250 (expenses, including rental management) / $645,000 (buy price) = 0.088
- 0.088 = 8.8%
If you buy this property in Cancun as an investment and would like to run it passively, you would expect to get a yearly return of 8.8% pre-tax, which is $56,760 in dividends. Real estate prices in Mexico have gone up over the past decade, so you can safely add 5% on top of your 8.8% cash flow yield, resulting in a 13.8% net yield.
While short-term rental properties typically have higher gross yields, they also tend to incur higher management costs. These expenses include rental management fees, utilities, cleaning, maintenance, and more. On the other hand, long-term rentals such as apartment buildings, apartments, and condos have lower ongoing costs due to reduced maintenance requirements, and tenants are responsible for paying utilities like electricity, water, and garbage fees.
Here is another example of a 2-bed apartment in Tbilisi, Georgia, that is rented out long-term:
Calculating gross yield:
- €22,400 (annual rental income) / €320,000 (buy price) = 0.07
- 0.07 = 7.0%
Calculating net yield:
- €22,400 (annual rental income) minus €4,480 (expenses, including rental management) / €320,000 (buy price) = 0.056
- 0.056 = 5.6%
We Don’t Predict Rental Revenue
Unlike other real estate agents who try to sell you “high yield” properties, we do not make assumptions or predictions. Our goal is to take the guesswork out of international real estate investing.
All the properties listed on our marketplace have a proven track record of at least 1 year of rental history. We cannot guarantee the kind of yields or revenue the property will make in 2024, 2025, or 2026, but we know the revenue (and costs) the property had in 2019, 2020, 2021, or 2022.