rental yieldcomplete guidereal estate investmentprofitabilityrental performance
You just closed on your first rental property — a one-bedroom apartment in Nantes for €185,000. The listing promised a 6.2% yield. Three months in, you tally the real numbers: property tax, co-ownership charges, insurance, one vacant month. The actual figure? Closer to 3.7%.
This gap isn't unusual. It hits the majority of investors who rely on the gross yield advertised by agencies. Rental yield is the most quoted metric in real estate — and probably the most misunderstood.
This guide covers everything an investor needs to know about rental yield: the different formulas, which expenses to include, the metrics that complement it, and the mistakes that cost real money. Whether you're preparing your first purchase or looking to optimize an existing portfolio, you'll find here a solid foundation for making informed decisions about your real estate investment performance.
Rental yield measures the ratio between what a property earns you in rent and what it cost you. Think of it as the interest rate on a savings account: it tells you how much each invested euro generates in income over a year.
Consider two investments. You place €100,000 in a savings account at 2.5%: you earn €2,500 annually. You invest the same amount in a studio apartment generating €5,000 in net rent: your yield is 5%. The logic is identical, but real estate adds dimensions that savings accounts don't — expenses, vacancy, taxation, and capital appreciation potential.
Two nuances matter from the start. First, rental yield isn't static. It shifts every year as rents, expenses, and property values evolve. A 5% yield at purchase can become 4% three years later if property taxes rise or the local rental market softens.
Second, "yield" and "total return" are often confused. Rental yield captures current income — the rent you collect. Total return also includes capital gains at resale. A property with a modest yield in a rapidly appreciating neighbourhood can deliver a higher total return than a high-yield property in a stagnant area.
This distinction explains why some investors accept net yields of 3% in Lyon or Bordeaux, while others demand 7% in Saint-Étienne. Both strategies can work — it depends entirely on your goals.
Rental yield isn't a single number. Three formulas coexist, and each answers a different question.
Gross yield (%) = (Annual rent ÷ Purchase price) × 100
This is the calculation you find in every property listing. For an apartment at €200,000 rented at €900/month: (10,800 ÷ 200,000) × 100 = 5.4%. Fast. Useful for filtering dozens of listings in five minutes.
But gross yield ignores everything: expenses, notary fees, vacancy, taxation. A property at 7% gross in an older building with €4,000 in annual charges can end up less profitable than a 5.5% gross in a newer building with near-zero running costs.
Net yield (%) = ((Annual rent − Expenses) ÷ (Purchase price + Acquisition costs)) × 100
Net yield accounts for every recurring expense — property tax, non-recoverable service charges, landlord insurance, vacancy and maintenance reserves — and adds acquisition costs to the denominator. It's the first reliable indicator of rental profitability.
The gap between gross and net typically runs 2 to 3 percentage points. A 6% gross rental yield generally translates to 3.5–4% net. When a seller or agent quotes a yield, always ask whether it's gross or net — the answer fundamentally changes the analysis.
Cash-on-cash (%) = (Annual net cash flow ÷ Total cash invested) × 100
Cash-on-cash shifts the perspective entirely. It doesn't measure the property's performance — it measures the performance of your capital actually deployed. This is the central metric when you're using mortgage leverage, and in France, very few investors buy with cash alone.
Two investors purchasing the same apartment get identical net yields. But the one borrowing 85% will have a radically different cash-on-cash than the one putting down 40%. Cash-on-cash reveals whether leverage is working for you or against you.
| Gross yield | Net yield | Cash-on-cash | |
|---|---|---|---|
| Measures | Raw performance | Real profitability | Return on equity |
| Data needed | Price + rent | + expenses + fees | + financing structure |
| Best for | Screening listings | Comparing properties | Optimizing financing |
| Limitation | Ignores all expenses | Ignores leverage | Depends on loan terms |
For a detailed comparison of these three metrics with worked examples, see our gross vs net vs cash-on-cash yield guide.
Time to get practical. The net rental yield formula has two parts worth breaking down.
Start from gross annual rent, then subtract each expense line:
Add notary fees to the listed price (7–8.5% for resale properties — higher since the April 2025 transfer duty increase across over 70 French departments) plus any buyer-side agency fees.
| Item | Amount |
|---|---|
| Purchase price | €120,000 |
| Notary fees (8%) | €9,600 |
| Monthly rent | €580 |
| Annual rent | €6,960 |
| Total annual expenses | €2,450 |
Net yield = (6,960 − 2,450) ÷ (120,000 + 9,600) × 100 = 4,510 ÷ 129,600 × 100 = 3.5%
The advertised gross yield for this studio would be 5.8%. After expenses and acquisition costs, reality is 2.3 points lower. Our complete net rental yield calculation guide walks you through a detailed example covering every expense line.
Net yield is essential but insufficient on its own for managing a real estate investment. Five complementary indicators form the investor's complete dashboard.
The DSCR (Debt Service Coverage Ratio) divides your net rental income by the annual debt service. A DSCR of 1.0 means rents exactly cover the mortgage payment — zero margin. French banks typically require a minimum of 1.1 to 1.3 to approve financing.
This metric tells you whether an investment is financeable, not just profitable. A 5% net yield with a DSCR of 0.90 means negative cash flow every month — your banker will spot it immediately. Our practical DSCR guide details the formula and the thresholds that matter.
An empty apartment earns nothing. The occupancy rate measures the percentage of time your property is actually rented. The conservative benchmark: 92%, roughly one vacant month per year. Below 85%, something is off — rent too high, poor location, or property condition deterring applicants.
This metric becomes especially revealing when tracked over time. A slide from 95% to 88% over three years signals a shifting local dynamic that demands a response. For a deeper look, see our guide on occupancy rate tracking and optimization.
Cash flow answers the most tangible question of all: how many euros remain in your account at month's end? Positive cash flow means the property covers its own costs. Negative cash flow means you're injecting money every month — sustainable if planned for, dangerous if it catches you off guard.
At REIOS, we've found that cash flow is the metric beginner investors overlook most often. They calculate yield but not what actually hits their bank account. Our monthly cash flow guide lays out the method step by step.
LTV (Loan-to-Value) measures the share of debt relative to your property's value. At 80%, your equity cushion is 20%. If prices drop 25%, you're in negative equity — your debt exceeds what the property is worth.
This ratio shifts naturally over time — each mortgage payment reduces the outstanding balance, and market appreciation compresses the LTV. An investor who bought at 80% LTV can find themselves at 60% after five years, unlocking borrowing capacity for the next acquisition. Our LTV ratio guide explains how to optimize this lever.
The internal rate of return (IRR) is the only metric that captures annual cash flow, capital gain at resale, and the time value of money in a single number. A property with negative cash flow but strong appreciation can show a higher IRR than a cash-flow-positive property with zero capital growth.
IRR reconciles current rental performance with wealth creation. Its weakness: it relies on assumptions about resale value and rent evolution that remain uncertain.
For a full overview of all seven metrics, our guide to the 7 essential real estate investor KPIs presents each one with concrete examples and benchmarks by investor profile.
The French property market enters 2026 with fresh benchmarks. Average gross yields vary significantly by city:
Mortgage rates have stabilized in early 2026 at around 3.25% for 20-year terms and 3.35% for 25 years on average. The strongest profiles still secure offers below 3%. After the rapid rises of 2022–2023, this stabilization gives investors more clarity when calculating rental profitability — though the spread between borrower profiles can still reach 0.5 points depending on the lender.
Three recent developments directly impact rental yield:
These changes don't make rental investment less worthwhile — they make accurate calculation more critical. A rough yield estimate leaves less and less room for error.
The most widespread and most costly mistake. A 7% gross yield can translate to 4% net. Making investment decisions based on gross figures is like evaluating a salary without deducting taxes — the number looks impressive, but it doesn't reflect what you actually pocket.
Notary fees represent 7–8.5% of the price for resale properties — more in departments that raised their transfer duties. Excluding them from total cost overstates your yield by 0.3 to 0.5 points. Across a multi-property portfolio, the error compounds.
The rent you're targeting isn't necessarily what the market bears. In rent-controlled zones — Paris, Lyon, Lille, Montpellier, Bordeaux, and soon others — the legal cap may fall below your estimate. Check actual rents on listing portals for comparable properties in the same neighbourhood before running any calculations.
Projecting 100% occupancy is unrealistic. Between tenants, you need to account for refurbishment time, listing, viewings, and lease signing. Even in tight markets, one vacant month per year is the minimum for a realistic calculation. In softer areas, budget for two.
A property with a high net yield but a DSCR below 1.0 will drain your savings every month. A property with a modest yield but strong appreciation can outperform over a decade. Yield is one metric among several — DSCR, cash flow, occupancy rate, and LTV fill in the gaps.
Calculating rental yield once at purchase isn't enough. A property investment is managed across years, and the variables shift: property tax rises, a tenant leaves, co-ownership charges are reassessed, interest rates move.
The most disciplined investors update their cash flow monthly and recalculate net yield whenever something material changes. A KPI that flatlines for a year while the market moves is a warning sign in itself.
A spreadsheet can work for a first property. By the second, formulas multiply, updates become tedious, and errors creep in. That's precisely why Excel falls short for managing a rental portfolio.
Whatever tool you choose, your rental performance tracking should cover three levels:
At REIOS, we built our platform to centralize these metrics in real time. Because a rental yield guide only matters if it leads to concrete decisions.
Rental yield is the entry point for every real estate investment analysis. But a single number is never enough. Here's where to start:
Each article in this guide dives deep into one facet of rental yield. Together, they form the knowledge foundation every investor needs for clear-eyed decisions — whether buying a first studio or fine-tuning a ten-property portfolio.