Rental yield
When you buy a flat to rent it out, the question is: how much does it really earn me? And "really" is the key word, because the advertised figure (the gross one) ignores a lot of costs.
Gross yield: the optimistic figure
Gross yield relates the annual rental income to what the property cost you, without deducting expenses:
Gross yield = (annual rent / purchase price) × 100
Example: you buy for €200,000 and rent for €900/month (€10,800/year). Gross = 10,800 / 200,000 = 5.4 %. Sounds good... but it is not what you keep.
Net yield: the honest figure
Net yield deducts all expenses and the purchase costs:
Net yield = (annual rent − annual costs) / (price + purchase costs) × 100
Typical costs to subtract each year:
- Property tax, community fees, home and non-payment insurance.
- Maintenance and repairs (~1 % of value per year as a rule of thumb).
- Vacancy: months without a tenant. It is a real cost.
- Management (if you delegate to an agency).
And the purchase costs (transfer tax/VAT, notary, registry…) are added to the denominator.
Net example
| Item | Amount |
|---|---|
| Annual rent | €10,800 |
| − Annual costs (~€2,300) | €8,500 |
| Price + purchase costs | €220,000 |
| Net yield | ~3.9 % |
From a 5.4 % gross we drop to a ~3.9 % net. And that is before taxes.
Taxation of rentals
Renting a property is real-estate income and is taxed in the general base of income tax (not the savings base), added to your salary. The good news: you can deduct almost all expenses (mortgage interest, property tax, community fees, repairs, depreciation of the property…).
In addition, when you rent a property as the tenant's primary residence, the net income enjoys a reduction. The 2023 housing law changed the rules: old contracts keep the 60 %, but for new contracts the general reduction dropped to 50 %, with higher percentages (up to 70-90 %) only in specific cases such as stressed-market areas or rent reductions. So depending on the contract you're taxed on 50 % or 40 % of the net profit. This reduction does NOT apply to holiday/tourist rentals.
The holiday let: more income, more of everything
A holiday let (by the day, tourist-style) can generate more income per night, but it involves:
- More costs and work: cleaning, utilities, platform fees, high turnover, tourist licence (regulated and restricted in many regions and cities).
- No 60 % reduction, and it is often treated as an economic activity if you provide hospitality services, with different taxation.
- More seasonality and vacancy.
It is not "the same but charging more": it is almost a business, with its own net yield that must be calculated with all those costs.
The yield almost nobody computes: on the money you actually put in
If you buy with a mortgage, yield on the full price understates things, because you didn't put in €220,000: you put in the down payment. The figure that really measures your return is the cash-on-cash yield: annual net profit divided by the money you took out of your own pocket (down payment + purchase costs). Leverage can supercharge it… or sink it if the property sits empty while the mortgage keeps running. That's the risk the "5.4 % gross" hides.
Common mistakes
- Advertising the 5.4 % gross and living on the 3.9 % net. Always subtract property tax, community fees, insurance, maintenance and, above all, the empty months.
- Forgetting that rent is taxed in the general base, added to your salary at your marginal rate, not in the savings base.
- Assuming you'll get a tourist licence. In many cities and regions it's restricted or frozen; without it, the holiday-let plan doesn't exist.
- Concentrating your whole net worth in one flat, losing diversification and liquidity.
If you like real estate without managing tenants, compare it with vehicles like SOCIMIs and real-estate crowdfunding.
This is educational information, not tax or investment advice. Rental regulation and taxes vary by region and municipality.