How to calculate rental yield properly

Rental yield is the single most quoted number in commercial property and the most frequently misquoted. The formula is simple. Getting honest inputs is the hard part.

This page shows the calculation, the difference between gross and net, and the specific adjustments that turn an attractive headline number into a realistic one.

The calculation

Gross yield = (Annual rent ÷ Total acquisition cost) × 100

Net yield = ((Annual rent − annual costs you bear) ÷ Total acquisition cost) × 100

Gross yield is what gets advertised. Net yield is what you actually receive. The gap between them is where most disappointment lives.

Getting the cost right

Total acquisition cost is not the sticker price. Include:

• Unit price
• Stamp duty and registration charges
• GST, where applicable to the transaction
• One-time maintenance, infrastructure or club charges
• Brokerage
• Legal and due-diligence fees
• Any fit-out you fund

Using the base price instead of the all-in cost inflates the quoted yield — sometimes materially.

Getting the income right

• Use the rent in the executed lease, not an expected or 'market' rent
• Deduct any rent-free fit-out period from year-one income
• Deduct CAM if you pay it rather than the tenant
• Deduct property tax and insurance if they fall on you
• Allow for vacancy between tenants — even a strong unit is unlikely to be let 100% of every year over a long hold
• Remember rent is taxable; your after-tax return is lower than your net yield

A worked example of the gap

Take a unit quoted at a 9% gross yield on a base price. Add stamp duty, registration and one-time charges and the cost base rises. Subtract CAM borne by the owner, a two-month fit-out rent-free period in year one, and an allowance for vacancy across the hold, and the realistic net figure lands materially below the headline. The point is not that 9% was a lie — it is that gross and net answer different questions.

Run this calculation yourself, with your own numbers, before comparing any two units.

What raises yield sustainably

• A strong tenant on a long lock-in with a written escalation clause
• A position that keeps the unit lettable — frontage, floor, footfall path
• A building that is maintained, so tenants renew instead of leaving
• Buying at a sensible entry price, which is the one lever entirely under your control

See investing at MSX Mall for the unit formats, and the checklist for the documents that let you verify each input.

Sources & useful links

External references used on this page. These open in a new tab.

• Income Tax Department, India
• Reserve Bank of India
• UP RERA