Every property listing quotes a yield, and almost every quoted yield is gross — annual rent divided by price, with none of the costs of actually owning the thing. The claim worth defending: gross yield is a marketing number, and the gap between it and net yield is large enough to turn a good-looking investment into a mediocre one.
Gross versus net, with a worked example
Take a property at ₹1,00,00,000 renting for ₹50,000 a month. Gross yield is ₹6,00,000 ÷ ₹1,00,00,000 = 6%. Now subtract the real costs: property tax and maintenance (₹90,000), management at 8% of rent (₹48,000), insurance (₹15,000), and a realistic vacancy allowance of one month a year (₹50,000). Net income is ₹3,97,000, a net yield of 3.97% — roughly a third lower than the headline. That gap is the whole decision.
The four costs calculations most often omit
Optimistic models leave out the same four things: vacancy (the property will not be let 100% of the time), maintenance and repairs (budget around 1% of value annually as a floor), management and letting fees, and the transaction costs of buying and eventually selling. Leave these out and every property looks like a winner. Put them in and the ranking between properties changes.
Realistic void assumptions by property type
Vacancy is not one number. A well-located family home in a stable area might sit empty two weeks between tenancies; a studio in an oversupplied market can be void for two months. Modelling every property at zero vacancy is the most common way to overstate yield, and it punishes exactly the higher-turnover property types that look cheapest per square foot.
Model the exit, not just the hold
Yield is the income story; it ignores what happens when you sell. Selling costs, capital gains and the possibility that the property has not appreciated all sit outside the yield figure. A 4% net yield with flat capital growth is a very different investment from the same yield with steady appreciation, and the annual number alone will not tell you which you have.
When the numbers only work on optimism
If an investment only clears your target return using gross yield, zero vacancy and no maintenance, it does not clear your target return. The honest test is whether it still works on conservative assumptions. Software that models this properly — real voids, real costs, the exit — is what turns a spreadsheet into a decision, and it is the kind of tool we build on our real estate service.