Rental yield: the sums after vacancy and costs

Gross yield is the simplest but also the most misleading measure — annual rent divided by the property's value, with nothing else taken into account. It is useful for a quick comparison between several properties, but it says nothing about the actual cash flow that ends up in the owner's pocket.

As a hypothetical example, suppose a property costs €150,000 and is let for €600 a month, or €7,200 a year. The gross yield is 7,200 / 150,000 = 4.8% a year — a figure that looks good until the costs are subtracted.

A change of tenant usually takes some time for viewings, minor repairs and a new move-in inventory, during which the property sits vacant. As an illustrative scenario, not a typical duration, assume one vacant month a year. Under that assumption the real income falls from €7,200 to €6,600.

From the income, the running costs directly tied to letting must be deducted: a property management fee, if delegated to a third party, minor repairs between tenants, property insurance, and any shared-area maintenance charges. Suppose, hypothetically, that these costs total €1,100 a year.

• Management fee, if the service is delegated
• Minor repairs and replacement of worn items
• Property insurance
• Property tax and waste-collection fee applicable to the owner
• Shared-area maintenance charges, if any

Net operating yield is obtained by subtracting operating costs from the income after vacancy, before accounting for mortgage financing or taxation — these depend on each owner's individual circumstances and cannot be summarised in a single rule.

In the hypothetical example: €6,600 income minus €1,100 costs leaves €5,500 net operating income. Against a property value of €150,000, the net operating yield is 5,500 / 150,000 = 3.67% a year — noticeably lower than the headline gross yield of 4.8%. In this example, the property price is used only as an illustrative denominator; for an actual decision it is more accurate to use the full acquisition cost (property plus transaction and fit-out costs) or the property's current market value.

The calculation above deliberately excludes mortgage payments, if the property is financed with a loan, and tax on rental income — both depend on the owner's individual circumstances. For the tax treatment of rental income, check the current rules from the NRA and consult an accountant for your specific case.

For one-bedroom flats, management and furniture-replacement costs weigh relatively more against income because the absolute rent is lower — how long a vacancy lasts depends on the specific location and demand, not on the property type itself. With larger flats and houses, the pool of suitable applicants is usually narrower, which can lengthen the time to find a tenant, but the higher monthly rent offsets some of that difference. For properties let furnished, budget should also be set aside for replacing worn furniture between tenants — a cost that is often absent for unfurnished properties.

Owners most often overstate their real yield by working the sums from the headline rent alone, without allowing for any vacancy scenario or a buffer for unexpected repairs. Another common mistake is comparing the gross yield of one property with the net operating yield of another — the two figures are not comparable, and such a comparison leads to the wrong conclusion about which property is the better investment.

Before deciding whether a property is worth it as an investment, run your own numbers with realistic assumptions about vacancy and costs, rather than relying on the headline gross yield from the listing. If you are weighing letting against selling, see also the comparison between selling and renting.