Gross + net rental yield
Gross yield = annual rent ÷ property value. Net yield subtracts operating expenses. A 5%+ net yield is usually considered healthy in Canadian secondary markets.
Your scenario
Result
Gross vs net rental yield — what each tells you
Rental yield is the annual rental return expressed as a percentage of property value. Two flavours matter:
- Gross yield: annual gross rent ÷ property value. Quick comparison metric.
- Net yield: (annual rent − annual operating expenses) ÷ property value. The real return before mortgage costs.
Gross yield is what real estate listings advertise. Net yield is what actually matters for investment decisions.
What counts as operating expenses
- Property tax
- Building insurance (landlord policy)
- Property management fees (8–12% of rents if outsourced)
- Maintenance + repairs (budget 1% of property value annually)
- Vacancy allowance (3–8% of gross rents in Canadian markets)
- Utilities (if landlord-paid: heat, water, internet)
- Condo fees (for stratified units)
- Legal + accounting
- Capital reserve (roof, furnace, plumbing — annualize across expected life)
What does NOT count as operating expense: mortgage principal + interest, depreciation (CCA), income tax. Those are below-the-line for yield calculations.
Typical Canadian net yields
- Toronto / Vancouver core condos: 2–3% net yield (low — driven by appreciation expectations)
- GTA / Lower Mainland suburban detached: 3–4%
- Calgary / Ottawa / Halifax: 4–5%
- Secondary Ontario / Quebec markets: 5–7%
- Atlantic Canada / Saskatchewan secondary: 6–9%
- Multi-unit / commercial residential (cap rate world): 5–8% net
Yield vs total return
Net yield captures the cashflow part of returns but ignores the two biggest equity builders:
- Principal paydown: every monthly payment converts debt to equity (tenants pay your mortgage)
- Appreciation: long-run Canadian residential 4–7%/year nominal
A 3% net yield property in Toronto might deliver a 12% total return per year once you add paydown and appreciation. A 7% net yield property in Saskatoon might deliver only 8% total if it doesn't appreciate.
The leverage effect
Net yield ignores leverage. Investors who put 20–25% down on a property leverage the asset 4–5×. A property with a 4% net yield delivering 5% appreciation becomes a much higher return on the actual cash invested. Pair this calculator with cap rate / ROI and rental cashflow for the full picture.
What yield doesn't capture
- Tenant quality (vacancy, damage, rent arrears)
- Capital structure (loan-to-value, term, rate)
- Tax treatment (rental losses, CCA, capital gains at sale)
- Liquidity (real estate isn't cash — selling takes 90+ days and costs 5–7% in fees)
- Concentration risk (everything riding on one neighbourhood)
Related
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