Comparing investment opportunities is impossible without a consistent set of metrics. A property advertised as delivering "8% yields" may be referencing a gross figure that bears little resemblance to what actually reaches your bank account. A claimed IRR of 15% may be based on assumptions that will not materialise.
Understanding how to calculate property returns accurately — and how to apply these calculations to different markets — is one of the most important skills an international investor can develop. This guide explains the main metrics, shows how to calculate them with worked examples, and explains where each metric is most and least useful.
Property values can fall as well as rise. Projections are not guarantees of future performance. All investments carry risk.
The Metrics That Matter
There are five core metrics every property investor should understand:
- Gross rental yield
- Net rental yield
- Cash-on-cash return
- Return on investment (ROI)
- Internal rate of return (IRR)
Each measures something different. Used together, they give a complete picture of an investment's economics.
1. Gross Rental Yield
What it measures: The annual rental income as a percentage of the purchase price, before any costs.
Formula: Gross Yield = (Annual Gross Rent ÷ Purchase Price) × 100
Example: A property purchased for €200,000 generates €14,400 per year in rent (€1,200 per month).
Gross Yield = (€14,400 ÷ €200,000) × 100 = 7.2%
Where it is useful: Quick comparison between properties and markets. Most marketed yield figures are gross yields.
Where it misleads: Gross yield tells you nothing about your actual return. A 10% gross yield on a property requiring €15,000 per year in maintenance, management, and taxes may net far less than a 6% gross yield on a low-maintenance, tax-efficient asset.
Market benchmarks (approximate, as of 2026):
- Dubai: 5–8% gross for residential apartments, higher for smaller units
- Greece (Athens): 4–6%; tourist areas higher
- Spain (Costa del Sol): 4–6% long-let; up to 8–10% for well-managed short-let
- Thailand (Phuket): 6–10% gross for holiday-let villas
- Bali: 8–12% gross for well-managed short-let villas
- UK (provincial cities): 5–8%; central London 3–4%
- Cyprus: 4–6%
- Egypt (resort areas): 7–10% claimed; independently verify
For market-specific data, see our yield guides for Dubai, Greece, Thailand, UK, Cyprus, Bali, Spain, and Egypt.
2. Net Rental Yield
What it measures: The annual rental income after all operating costs, as a percentage of the purchase price.
Formula: Net Yield = ((Annual Gross Rent − Annual Operating Costs) ÷ Purchase Price) × 100
Typical operating costs to deduct:
- Property management fees (8–30% of gross rent depending on market and let type)
- Service charges / maintenance fees
- Property taxes and rates
- Insurance
- Maintenance reserves (typically 1–2% of property value per annum)
- Void period allowance (typically 5–10% of gross rent)
- Accountancy and tax compliance fees
Example (continuing from above):
- Annual gross rent: €14,400
- Management fees (12%): €1,728
- Service charge: €1,200
- Property tax: €800
- Insurance: €400
- Maintenance reserve: €1,000
- Void allowance (5%): €720
- Total operating costs: €5,848
Net Yield = ((€14,400 − €5,848) ÷ €200,000) × 100 = (€8,552 ÷ €200,000) × 100 = 4.3%
The difference between 7.2% gross and 4.3% net is substantial and entirely predictable — it is simply the application of real costs.
Adjusting for purchase costs: Some investors calculate net yield against total capital deployed (purchase price plus buying costs) rather than just the purchase price. In markets with high transaction costs (Spain at 10–13%, Thailand at 6–7%, Bali potentially higher), this materially reduces the stated yield.
If our €200,000 property had €18,000 in buying costs, the all-in capital deployed would be €218,000, and the net yield would be €8,552 ÷ €218,000 = 3.9%.
3. Cash-on-Cash Return
What it measures: Net rental income as a percentage of equity actually invested (not total property value). This is the most relevant metric if you are using debt financing.
Formula: Cash-on-Cash Return = (Annual Net Cash Flow After Debt Service ÷ Equity Invested) × 100
Example: A property purchased for £300,000 with a £150,000 mortgage at 5% interest.
- Annual gross rent: £18,000
- Annual operating costs: £7,000
- Annual mortgage interest: £7,500 (5% × £150,000)
- Annual net cash flow: £18,000 − £7,000 − £7,500 = £3,500
- Equity invested: £150,000 (assuming no buying costs for simplicity)
Cash-on-Cash Return = (£3,500 ÷ £150,000) × 100 = 2.3%
This illustrates an important point: leverage does not always improve cash returns if interest rates are high relative to net yields. In a low-interest-rate environment (say 2%), the same example would produce a cash flow of £18,000 − £7,000 − £3,000 = £8,000 and a cash-on-cash return of 5.3% on £150,000 equity — meaningfully higher than the unlevered net yield.
The decision to use debt requires modelling the interaction between yield, interest rate, and leverage ratio carefully.
4. Return on Investment (ROI)
What it measures: Total return — income plus capital gain — as a percentage of total capital invested, over a specific holding period.
Formula: ROI = ((Net Rental Income + Capital Gain − Total Costs) ÷ Total Capital Invested) × 100
This can be expressed on an annual basis (AROI) by dividing by the number of years held.
Example: An investor purchases a property for £250,000, incurring £20,000 in buying costs. Over 10 years, net rental income totals £80,000 (after all costs including tax). The property is sold for £350,000, incurring £12,000 in selling costs and £20,000 in capital gains tax.
- Total capital deployed: £250,000 + £20,000 = £270,000
- Net capital gain on sale: £350,000 − £12,000 − £20,000 − £250,000 = £68,000
- Total return: £80,000 + £68,000 = £148,000
ROI = (£148,000 ÷ £270,000) × 100 = 54.8% over 10 years, or approximately 5.5% per annum
ROI is a useful summary metric for evaluating completed investments or comparing historical returns. It does not account for the time value of money — £10,000 received today is worth more than £10,000 received in year 10 — which is why IRR is the superior metric for comparing investments of different durations.
5. Internal Rate of Return (IRR)
What it measures: The compound annual growth rate that equates all cash outflows and inflows over the life of the investment. It is the single most comprehensive return metric for comparing investments across different time horizons, with different cash flow profiles.
In plain terms: IRR answers the question "what compound annual interest rate would I need to achieve the same result by investing in a bank account as I achieved with this property?"
IRR is calculated iteratively — the formula cannot be solved algebraically. Spreadsheet applications (Excel, Google Sheets) use the =IRR() function. Financial modelling software calculates it automatically.
Components of the IRR calculation:
- Year 0: Capital outflow (purchase price + buying costs) — negative
- Years 1–N: Annual net cash flows (rent minus all costs minus debt service) — positive or negative
- Year N: Capital inflow on sale (sale price minus selling costs minus taxes, plus return of debt) — positive
What makes a good IRR?
This depends on the risk profile of the investment and the prevailing alternative investment returns. As a rough guide:
- 8–12% IRR: Strong return for a well-located, lower-risk investment (developed market residential)
- 12–18% IRR: Good return for a medium-risk investment (new-build in growing market, some operational risk)
- 18%+ IRR: High return typically requiring higher risk (emerging market, development play, significant leverage)
Always be sceptical of projected IRRs above 20% in property unless you have a clear and credible model for achieving them. Developer-marketed projections frequently use optimistic occupancy rates, understated costs, and speculative capital appreciation assumptions.
Building a Simple Investment Model
To evaluate any property investment properly, build a simple model with the following structure:
Year 0 (Acquisition)
- Purchase price
- Stamp duty / transfer taxes
- Legal fees
- Agency fees
- Furnishing and fit-out (if applicable)
- Finance arrangement costs (if applicable)
- Total capital deployed
Years 1–N (Holding Period)
- Gross rental income (with explicit occupancy assumption)
- Less: management fees
- Less: service charges / HOA fees
- Less: local property taxes
- Less: insurance
- Less: maintenance and repairs
- Less: rental income tax (after allowable deductions)
- Less: mortgage interest and principal (if applicable)
- Net annual cash flow
Year N (Disposal)
- Sale price (based on an explicit capital growth assumption)
- Less: agent fees
- Less: legal fees
- Less: capital gains tax / exit taxes
- Net disposal proceeds
Running this model with conservative, base, and optimistic scenarios for occupancy, rental growth, and capital appreciation gives you a realistic range of outcomes rather than a single-point projection.
Common Return Calculation Mistakes
Using purchase price not total capital deployed: Many investors forget to include buying costs (which can be 5–15% of the purchase price in some markets) when calculating yields and returns. This overstates actual returns.
Using gross not net yields: Comparing gross yields across markets is meaningless unless the cost structures are similar. A 10% gross yield in a market with 30% management fees and high maintenance costs may net less than a 6% gross yield in a low-cost, efficiently managed market.
Ignoring void periods: Even the strongest rental markets experience void periods. Assuming 100% occupancy is almost always wrong. Stress test your model at 75% and 60% occupancy.
Not accounting for currency risk: If your rental income is in euros and your domestic obligations are in sterling, a 10% sterling appreciation can turn a 6% net yield into an effective 5.4% when measured in your home currency. Our guide to exchange rates and overseas property explores this in depth.
Using nominal not real returns: Inflation erodes the purchasing power of fixed nominal income. A property generating the same rent in nominal terms for 10 years is actually generating declining real income. In high-inflation environments, this distinction matters significantly.
Ignoring the cost of your time: If you are personally managing the property, spending significant hours per month on administration, maintenance coordination, and tenant communication, your time has value. A self-managed property generating a 6% net yield may effectively be generating 4% when the opportunity cost of your time is included.
Comparing Returns Across Markets
When comparing markets, use a consistent framework. A table comparing net yields across all eight of our markets might look like this:
| Market | Gross Yield Range | Typical Management Cost | Net Yield Range |
|---|---|---|---|
| Dubai | 5–8% | 8–12% of gross | 4.5–7% |
| Greece (tourist) | 6–10% | 20–30% | 4.5–7.5% |
| Spain (tourist) | 5–9% | 20–30% | 3.5–6.5% |
| Bali (villa) | 8–12% | 20–30% | 5.5–9% |
| Thailand (Phuket) | 6–10% | 20–30% | 4–7% |
| UK (north) | 5–8% | 10–15% | 3.5–6% |
| Cyprus | 4–6% | 10–15% | 3–5% |
| Egypt (resort) | 7–10% | 15–25% | 4.5–7% |
These are indicative ranges. Actual figures vary significantly by specific location, property type, and management quality. Please consult individual market guides and seek current data before making investment decisions.
How Global Investments Can Help
Evaluating investment returns accurately — and comparing opportunities across different markets, currencies, and tax regimes — is a technical process that benefits from expert support. Global Investments provides pre-acquisition investment analysis for clients considering property across our eight core markets, helping you model returns on a consistent, fully-costed basis that reflects real-world outcomes rather than developer projections.
Our investment advisers have over 32 years of experience analysing cross-border property returns. Speak to our team to receive a detailed return analysis for any property you are considering.
This guide is for general information only and does not constitute financial, legal or tax advice. Programme rules, prices and tax rates change; verify current requirements with a qualified adviser before acting.