Gross yield vs cap rate: What’s the difference?

When you're weighing up a rental or commercial property, you'll come across two numbers that sound similar but tell you different things: gross yield and cap rate.

Both measure how well a property pays off relative to its price, yet they account for different costs and serve different purposes. So, which metric should you use, and when?

This guide breaks down what each term means, how to calculate them, and when to pay attention to one over the other.

We'll also introduce the Wise account, which allows you to send, spend, and receive your money across the globe in over 40 currencies – all at the fair mid-market rate.

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What is a gross yield?

Gross yield measures the annual rental income a property earns as a percentage of its price or value, before any expenses are taken out.

Because it ignores running costs, gross yield gives you a quick, rough read on how much a property returns. It's handy for comparing properties at a glance, but since it leaves out things like upkeep, taxes, and insurance, it tends to paint a rosier picture than you'll see once the bills come in.

How to calculate a gross yield?

To work out gross yield, divide the property's yearly rental income by its price or current value, and then multiply by 100:

Gross yield = (Annual rental income ÷ Property value) × 100

For example, say you own a property worth 250,000 USD that brings in 18,000 USD in rent over a year. Divide 18,000 by 250,000, then multiply by 100, and you land on a gross yield of 7.2%.

For a point of reference, the average gross rental yield in the US currently sits at 6.56%, so a property above that mark is doing better than the national average.¹

What is a cap rate?

A cap rate, short for capitalization rate, shows the return a property earns based on its income after operating costs, expressed as a percentage of its value.

The main difference from gross yield is that the cap rate factors in expenses.

By subtracting the costs of running the property, it gives you a more grounded sense of what you'd earn. That makes it a favorite among property investors who want a clearer comparison between deals.

Learn how to buy your first rental property.

How to calculate a cap rate?

For the cap rate, you divide the property's Net Operating Income by its value:

Cap rate = Net Operating Income (NOI) ÷ Property value

Net Operating Income is the rent left over after you've covered the yearly cost of running the property, including expenses like repairs, insurance, and taxes, but not your mortgage.

Suppose a commercial building is valued at 800,000 USD and earns 64,000 USD in Net Operating Income after expenses. Divide 64,000 by 800,000, and the cap rate comes to 8%.

To put that in context, recent US national cap rates run to roughly 6.1% for multifamily, 7.2% for industrial properties, 9.1% for office, and 7.3% for retail spaces.²

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Key differences: gross yield vs cap rate

The two metrics naturally overlap, but they're not the same thing. Here's how they stack up:

• Expenses: Gross yield is based on rental income before any costs come out, and the cap rate is based on income after operating expenses
• Accuracy: Gross yield is a quick, surface-level estimate, and cap rate gives you a truer picture of what a property returns
• Speed: Gross yield is faster and easier to work out, since you only need the rent and the price, while the cap rate asks you to total up the running costs first
• Best use: Gross yield works well for a fast comparison, and the cap rate is great for a deeper look at a property's earning potential

Overall, gross yield tells you what a property earns on paper, and the cap rate tells you what it earns once the bills are paid.

Both are helpful metrics. They just tell you slightly different things.

Which metric should you use?

It depends on what you're trying to learn. Many investors start with gross yield to narrow the field and then turn to the cap rate before making a decision.

Let's take a closer look:

When to use gross yield

Gross yield shines when you want a speedy answer. It's a screening tool that helps you sort through a long list of options without crunching every expense.

Use it when:

• You're comparing a few different properties quickly and want a rough ranking
• You don't yet have detailed expense figures for the properties on your list
• You're scanning a new market to get a general feel for returns

Once you've shortlisted the properties worth a closer look, you'll want a metric that accounts for costs.

When to use the cap rate

The cap rate is for when you're more serious about a certain property. It's a bit harder to calculate, but it gives you a clearer view of the return you'd take home.

Use it when:

• You're evaluating a single property more in-depth before an offer
• You have reliable figures for the property's operating expenses
• You want to compare deals on an even footing that reflects running costs

Gross yield vs cap rate is also ultimately not an either/or situation. Both numbers in hand allow you to weigh a property from two angles and make a more informed call.

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If you're buying a property in another country or managing one from afar, you'll need to send money across borders at some point. That might be for the purchase of the property, ongoing costs, or moving rental income back home to the US.

Banks tend to make this pricey. On top of transfer fees, many add a markup to the currency exchange rate, which eats into every payment you make or receive.

The larger the amount, the more the markup costs you.

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Sources

1. Global Property Guide - Gross rental yields in the United States
2. JP Morgan - The role of cap rates in real estate

Sources checked 06/17/2026