Gross rental yield
Gross yield is annual rent divided by purchase price. It is useful for quick comparison but ignores vacancy and ownership expenses.
Net rental yield
Net yield subtracts property expenses before dividing by value or purchase price. It provides a better view of the property's income performance, although finance and tax are usually modelled separately.
Capital growth
Capital growth is the change in the property's value. It is uncertain, varies by location and property type, and should not be assumed at a fixed rate.
The trade-off
Some high-yield markets have weaker long-term buyer demand or higher economic concentration. Some low-yield markets have strong owner-occupier demand but can place more pressure on investor cash flow. Neither profile is automatically better.
Stress-test both
When comparing property, model more than one growth assumption and test what happens if rent is lower, vacancy is longer or interest costs are higher than expected.