Before buying a property to rent out, the key question is: is it actually worth it? To answer that, you need to calculate your rental property yield rigorously, factoring in all costs — not just gross income. Our simulator does this automatically.
What is rental yield and why does it matter?
Rental yield measures the income a property generates relative to its purchase price. It is expressed as an annual percentage and allows you to compare a property investment against other alternatives (index funds, bonds, savings accounts).
In Spain, according to the Bank of Spain, average gross rental yields range from 4 % to 7 % per year depending on the city and neighbourhood. Cities with higher yields tend to have relatively low purchase prices compared to rental income.
Gross yield vs net yield: the key differences
Gross yield: calculated by dividing the annual rent by the purchase price, without deducting expenses. Formula: (Monthly rent × 12) / Purchase price × 100. Example: you pay €150,000 for a flat rented at €700/month → (700 × 12) / 150,000 × 100 = 5.6 % gross.
Net yield: deducts all associated costs (property tax, community fees, insurance, repairs, vacancy periods, income tax). It is typically 1.5 to 2.5 percentage points lower than gross yield — and is the real indicator of what you actually earn.
Cash-on-cash return: the money left each month after paying the mortgage and all expenses. You can have a healthy yield but negative cash flow if your mortgage payment is high.
Which expenses to include when calculating real yield
- Property tax (IBI in Spain): 0.4 %–1.3 % of the cadastral value per year.
- Community fees: variable; average €50–€150/month.
- Home insurance: €200–€600/year depending on coverage.
- Vacancy periods: estimate an average of 1–2 months per year without a tenant.
- Repairs and maintenance: at least 1 % of the property value per year.
- Property management (if outsourced): typically 8–12 % of monthly rent.
- Income tax: rental income is taxable; you can deduct the above expenses.
What rental yield is considered good?
As a benchmark, a net yield above 4 % is considered acceptable in the Spanish market. Above 6 % net is an excellent return. You should also factor in long-term capital appreciation and legal security. A net yield of 3 % can be reasonable if the asset is in a high-demand area with strong appreciation potential.
Frequently asked questions
What is the average rental yield in Spain?
According to the Bank of Spain and property sector data, the average gross rental yield in Spain is between 4 % and 7 % per year. Cities with the highest yields tend to be smaller or have moderate purchase prices: Murcia, Lleida or Huelva can exceed 7 % gross, while Madrid or Barcelona range between 3.5 % and 5 %.
How do you calculate gross rental yield?
The formula is straightforward: Gross yield = (Monthly rent × 12) / Purchase price × 100. For example, a flat bought for €120,000 and rented for €600/month gives a gross yield of (600 × 12) / 120,000 × 100 = 6 %. Remember to include purchase transaction costs in the total price (notary, registration, transfer tax or VAT).
Which expenses should I include for net yield?
To calculate net yield, deduct from gross income: property tax, community fees, home insurance, repairs and maintenance (estimate at least 1 % of property value per year), vacancy periods (1–2 months per year), agency management fees if outsourced, and income tax on net rental income.
What is cash-on-cash return for a rental property?
Cash-on-cash return is the money left each month after collecting rent and paying all expenses including the mortgage payment. Formula: Monthly cash flow = Monthly rent − Mortgage payment − Monthly property tax − Community fees − Insurance − Provisions. Positive cash flow means the investment pays for itself month by month.
When is a rental property not worth the investment?
A rental investment may not be worthwhile when the net yield is below the mortgage interest rate (negative leverage), when expenses are excessively high (expensive community fees, frequent repairs), when there are many vacancy periods or non-payment events, or when the purchase price was too high relative to market rent. Our simulator helps you identify these situations before you invest.
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