Rental property returns: from gross to net
Understand gross rental yield, operating costs and cash flow. A clear example helps you compare the numbers behind your rental property.
“What return does my apartment generate?” is useful only when the final number has a clear meaning. Gross yield, the result after costs and the money available in your account describe different things. Putting them in one forecast helps you assess a rental beyond the most attractive percentage.
Gross yield is the starting point
A simple formula divides potential annual rent by the reference capital. If you use acquisition cost, specify whether it includes taxes, notary fees, works and furnishings. If you use the home’s current value, say so: that answers a different question. Percentages calculated on different bases cannot be compared directly.
Illustrative assumptions: €300,000 of total capital committed, rent of €1,500 a month and 12 fully let months.
€18,000 ÷ €300,000 = 6% gross
This is a potential rental yield before costs, taxes and vacant periods. It excludes changes in the property’s value.
Move from potential to actual receipts
If the home generates rent for 11 months, the receipts considered fall to €16,500. One vacant month affects the result even when the advertised price stays unchanged. Distinguish rent due from rent actually received so that payment delays remain visible.
Record the security deposit separately: it is not rent available to spend. Treat money collected for utilities or other tenant charges similarly. A bank receipt alone does not establish that the full amount is the owner’s income.
Which costs come before a net result?
Use documented costs or quotes consistent with the chosen service: management, routine maintenance and repairs, insurance, unrecoverable charges and other ownership costs. Specify whether quotes include VAT. Significant, non-recurring expenses deserve their own forecast rather than disappearing from the analysis.
| Example item | Annual amount |
|---|---|
| Assumed actual rent | €16,500 |
| Assumed total costs | −€4,200 |
| Result before tax and financing | €12,300 |
| Result on €300,000 of capital | 4.10% |
The example’s 4.10% is not a final net yield. Personal taxes and any financing costs remain excluded, as does a future sale. This illustrates a method rather than an expected result for Milan properties.
Profitability and cash flow offer different views
A mortgage payment reduces available cash, but its principal repayment is not an economic expense for the year. Prepare a separate cash-flow forecast alongside the return calculation. Even a property with a positive result may need cash in some months, for example when a repair is paid before rent arrives.
Taxation depends on the person, contract and applicable regime: avoid using a standard percentage simply because it appears in an online simulation. The Italian Revenue Agency’s RLI service is an institutional reference for rental formalities.
Use three scenarios to inform the decision
Compare a base forecast with one assuming fewer occupied months and another with higher costs. The differences show how much the project relies on favourable assumptions. The principle of considering returns, risk and costs together also appears in the Bank of Italy’s financial education material; here we apply it to a property example.
To compare rental approaches, start with our mid-term rental guide or discuss your property with Demora.
Institutional sources linked in the text were consulted on 22 October 2026. Formulas and examples are educational calculations, not forecasts of returns or individual tax assessments.
