Property investment
The purchase price alone says little about a property investment. These metrics show how the property actually works as an investment.
Gross rental yield
Gross yield is useful for a quick comparison between properties, but it ignores purchase costs, operating costs and financing. It is not enough for a decision.
Net rental yield
Net yield is often one to three percentage points below gross yield because it includes the costs that actually occur. The companion article Planning purchase costs and financing correctly explains which costs belong in the calculation.
Cash flow & return on equity
Rental yields look at the property without financing. In practice, monthly cash flow matters: rent minus operating costs minus interest and principal payments. Positive cash flow means the property supports itself; negative cash flow requires a contribution.
Return on equity (ROE) relates the result to the equity invested. With a high debt share, ROE can be well above the net rental yield, but the monthly obligation also rises. A property can show an attractive ROE on paper and still cost money every month.
Price multiplier
The multiplier says how many annual rents equal the purchase price. A lower number can indicate a cheaper valuation relative to rent, but it does not replace a multi-year economic analysis. Future income, costs and financing still matter.
Worked example
Take the example property at €300,000 with €12,000 annual net rent. Gross yield is 4%. Add €30,000 purchase costs and €2,400 of annual non-recoverable costs, administration and reserves:
Financing then changes the view. Separate property return, monthly cash flow and return on equity. Check that you can carry payments, reserves and vacancy even if rent does not rise.
Before buying
A spreadsheet can show that a property looks interesting. It cannot tell you whether it will remain lettable, whether major repairs are coming or whether the assumed rent is realistic. Review location, condition, lease, owners' association and planned measures as well.
A high gross yield may come from a low price, an unrealistic rent, a maintenance backlog or a difficult location. The metric is a filter, not proof. My order is: estimate rent and costs realistically, model financing, then look at ROE. If the result works only under optimistic assumptions, put that openly in the bear case.
Time and sale
A property can have negative cash flow in year one and still build equity through repayment, rent growth and a change in property value. The reverse is also possible: positive first-year cash flow can hide a later renovation or expensive refinancing. Compare the full holding period, including starting equity, cash flow, repayment, reserves, selling costs and net sale proceeds.
Do not put operating costs, reserves and principal repayment into one undifferentiated “cost” line. An expense reduces wealth; a reserve is planned for a future expense; principal reduces debt while reducing liquidity. That distinction makes the result easier to understand.
Enter property data and calculate gross and net yield, cash flow, ROE and the price multiplier automatically.
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