Rental yield is a starting point, not the whole investment

Know what the percentage measures

Rental yield is a convenient way to begin comparing property investments. It becomes less useful when people use the same label for different calculations. Ask whether the figure is gross or net, what cost sits in the denominator, and which expenses have been allowed.

For a simple illustration, annual rent of €18,000 divided by a purchase price of €300,000 gives a gross yield of 6 per cent. That is arithmetic, not a forecast of the investor’s return. It excludes acquisition costs, repairs, vacancy, management, finance, and tax.

Build a realistic income picture

Start with the actual contractual position and payment history where available. Distinguish rent being received from an assumed market rent. Identify incentives, arrears, breaks, reviews, and any costs the owner must meet. A commercial lease and a residential letting raise different questions.

The relevant legal adviser should interpret the agreement and the rights attaching to occupation. For residential arrangements, the Residential Tenancies Board (RTB) explains that calling an agreement a licence does not determine its legal character; the substance matters (RTB, n.d.). A label should not be used as a shortcut around that assessment.

Do not assume that a higher rent can simply be introduced because a spreadsheet requires it. The lawful position, existing terms, and realistic market evidence must inform the analysis. Where the law is relevant, check the current rules for the particular tenancy.

Test the costs and interruptions

Prepare a schedule of recurring expenditure and likely capital work. Consider the effect of a period without rent and the practical cost of reletting. Decide what allowance is appropriate for the particular property rather than importing a standard percentage without thought.

As a further illustration, if €3,000 of annual operating costs is deducted from the €18,000 rent, the remaining €15,000 is 5 per cent of the €300,000 price. That still excludes several matters, including finance and tax. Stating the omissions is part of presenting the calculation honestly.

An investor’s financing arrangements and objectives can affect what the investment is worth to that person. That individual investment value should not be confused with an independent opinion of market value (RICS, 2024).

Explain the risk as well as the return

Baum, Crosby and Devaney (2021) and Isaac and O’Leary (2011) are useful further-reading choices for investment appraisal. Their inclusion here does not turn an illustrative calculation into investment advice.

My preference is to begin with a transparent income-and-cost schedule, then test the assumptions that matter most. A headline yield may attract attention. A clear account of the income, obligations, and uncertainty is what helps somebody understand the decision.