A property can look like a bargain on the listing page and still drain your bank account every month. The gap between the two is cash flow. This article shows you how to calculate the real rental yield and monthly cash flow of an investment property before you sign, so you know whether the asset pays you or you pay for it.
Gross yield vs net yield: why the headline number lies
Most agents quote gross yield, because it is the biggest number. It answers one question: annual rent divided by purchase price.
Gross yield = (monthly rent × 12) ÷ purchase price × 100.
The problem is that gross yield ignores every cost of ownership. Net yield is the number that tells the truth. It subtracts running costs before dividing by the money you actually put in.
Net yield = (annual rent − annual operating costs) ÷ total cash invested × 100.
“Total cash invested” means your down payment plus purchase taxes, legal fees, agent fees, and any repairs needed before the first tenant moves in. Using the full purchase price here flatters your return; using your real cash outlay is honest.
The costs people forget
When I underwrite a rental, I budget for the costs that never appear in the listing:
- Vacancy: assume the unit is empty part of the year. A conservative figure is one month of lost rent annually, more in a soft market.
- Management fees, if you will not self-manage.
- Maintenance and repairs: a rough planning rule is to set aside a slice of rent each month; older buildings need more.
- Property tax, insurance, and any building or homeowner fees.
- Turnover costs: cleaning, small fixes, and re-listing between tenants.
None of these are optional over a full holding period. Leaving them out is the single most common reason a “7% yield” turns into a 3% one.
Cash flow is the number that keeps you solvent
Yield tells you if the asset is efficient. Cash flow tells you if you can hold it. If you use a mortgage, monthly cash flow is what is left after the loan payment.
Monthly cash flow = rent − operating costs − mortgage payment.
A property can have a healthy net yield and still bleed cash each month once the loan is added, especially with a high loan amount or short term. Negative cash flow is not automatically a mistake, but it must be a deliberate bet on price growth, funded by income you can prove is stable, not a surprise you discover in month three.
A worked example
Suppose a small apartment costs 2,000,000,000 VND. You pay 30% down (600,000,000) plus about 60,000,000 in taxes and fees, so your cash invested is 660,000,000. Market rent is 10,000,000 per month.
| Gross annual rent | 120,000,000 |
| Less vacancy (1 month) | −10,000,000 |
| Less management, maintenance, insurance, tax (est.) | −18,000,000 |
| Net operating income | 92,000,000 |
| Net yield on cash invested | ~13.9% |
Now add a loan of 1,400,000,000. If the annual payment is around 130,000,000, your annual cash flow is 92,000,000 − 130,000,000 = −38,000,000. The unlevered yield looks excellent, yet the levered position loses money each year. That is the difference the mortgage makes, and why you must run both numbers.
Common mistakes and how to fix them
- Quoting gross yield as if it were profit. Fix: always compute net yield on real cash invested.
- Assuming 100% occupancy. Fix: build in a vacancy allowance from day one.
- Using an optimistic rent. Fix: verify against actual signed leases nearby, not asking prices.
- Ignoring capital expenditure. Fix: reserve for the roof, boiler, or big items that fail every 10–20 years, not just monthly repairs.
- Forgetting that rent and costs both rise. Fix: stress-test with flat rent and higher costs, and see if you still survive.
Action steps before you make an offer
- Collect three real rental comparables from signed leases, not listings.
- List every ownership cost and total them as an annual figure.
- Calculate gross yield, net yield, and monthly cash flow, levered and unlevered.
- Add a vacancy month and a maintenance reserve, then recalculate.
- Decide, in writing, whether you are buying for cash flow, for price growth, or both, and confirm the numbers support that goal.
Conclusion and next step
Yield and cash flow answer two different questions, and you need both before you buy. Build a simple one-page spreadsheet with the lines above and fill it in for the next property you view. If the net yield is thin and the cash flow is negative without a clear growth thesis, walk away. The best deal is the one whose numbers still work when you are pessimistic.
FAQ
What is a good rental yield?
There is no universal figure; it depends on location, property type, and interest rates. Compare a property’s net yield against safe alternatives like a term deposit or government bond in your market. If the extra return over that baseline does not compensate you for the extra work and risk, the deal is weak.
Should I ever accept negative cash flow?
Only as a conscious choice, funded by stable outside income, when you have strong reasons to expect capital growth. Never accept it by accident because you skipped the mortgage line in your calculation.
Do I use the purchase price or my down payment to calculate yield?
Use both, for different purposes. Yield on total price shows the asset’s raw efficiency. Yield on cash invested (your down payment plus fees) shows your real return, which is what matters to your wallet.
How much should I reserve for maintenance?
It varies with the building’s age and condition. A practical habit is to set aside a fixed share of monthly rent and top up a separate account, so a big repair does not become a crisis.