Rental Yield vs Cap Rate vs Cash-on-Cash Return

Gross rental yield is a fast income screen. Net rental yield improves it by subtracting operating costs. Cap rate focuses on net operating income before financing, which makes it useful for comparing properties with different loan structures. Cash-on-cash return then adds financing and asks how hard the cash you invested is working.

No single metric should decide an acquisition. Vacancy, maintenance, service charges, taxes, insurance, financing and exit assumptions can materially change the result.

Start with rental yield to remove obviously weak opportunities. Use cap rate to compare operating performance on a like-for-like basis. If you plan to borrow, move to cash-on-cash return and monthly cash flow. Finally, model a wider investment scenario with purchase costs and a conservative exit assumption.