Little Money Matters Net-Yield Comparison Estimator

A property's headline rental yield and the income that actually reaches an investor can be far apart. Empty periods, management fees, repairs, insurance, property taxes, purchase costs and income tax all come off the rent, while a listed property fund (a REIT) has its own fees, dealing costs and tax on dividends. This estimator puts both on the same capital and shows the net yield of each, along with the vacancy rate and the REIT dividend yield at which the two would match. Enter your own figures, or use the illustrative example, and compare.

Net yield is the income left after costs, divided by the money put in. A direct property usually has a higher headline yield than its net yield, because many costs sit between the rent and the owner. A REIT is a company or trust that owns property and pays out most of its income as dividends, so its costs are mostly inside the fund and a smaller number of fees sit outside it. This tool compares only the income each produces on the same cash outlay. It treats both as bought with cash, without a mortgage.

How to use it

1. Enter the direct property's price, purchase costs, rent and yearly running costs, including your expected vacancy.
2. Enter the REIT's quoted dividend yield, any extra yearly fees and dealing costs. The REIT side is sized to the same total cash outlay as the property.
3. Enter the tax rate on each type of income, then read the net yields, the break-even points and the vacancy table.

Currency$ (US dollar)£ (British pound)€ (euro)

Direct property

Purchase price

Purchase costs (% of price)Transfer taxes, legal fees, survey.

Monthly rent at full occupancy

Vacancy (% of the year empty)

Management and letting fees (% of rent collected)

Maintenance and repairs (% of price a year)

Insurance (a year)

Property taxes and charges (a year)

Other costs (a year)Accounting, licences, service charges.

Tax rate on rental income (%)

REIT (listed property fund)

Quoted dividend yield (%)

Extra yearly fees not in the yield (%)For example a platform fee. Use 0 if none.

Dealing costs when buying (%)

Tax rate on dividends (%)

How it is calculated

• Total cash outlay (capital) = price × (1 + purchase costs). The REIT side invests the same total, with dealing costs taken from it, so the amount in the REIT = capital ÷ (1 + dealing costs).
• Direct property: rent collected = monthly rent × 12 × (1 − vacancy). Net operating income = rent collected − management fees − maintenance − insurance − property taxes − other costs. Income tax = tax rate × net operating income (zero if negative). Net yield = income ÷ capital, before and after tax. Gross yield = annual rent at full occupancy ÷ price.
• REIT: income = (dividend yield − extra fees) × amount invested. Tax = tax rate × income (zero if negative). Net yield = income ÷ capital.
• Break-even vacancy is the vacancy at which the direct property's after-tax income equals the REIT's. Break-even dividend yield is the REIT yield at which the REIT's after-tax income equals the property's.
• Worked example with the default inputs: capital is 312,000 and the gross yield is 6.0%. The property's net operating income is 10,366, a net yield of 3.32% before tax and 2.59% after tax. The REIT earns 11,043 before tax and 8,613 after tax, a net yield of 3.54% before tax and 2.76% after tax. The break-even vacancy is about 1.9%, and the break-even REIT dividend yield is about 3.58%.

Assumptions and limits

• Yield measures income only. It leaves out price changes, which can be larger than the income and differ between a single property and a diversified fund. Both investments can lose value.
• A direct property is a single, hard-to-sell asset with its own risks, including void periods longer than assumed, tenant defaults, major repairs and local market conditions. A REIT is traded daily and spread over many properties but its price can move with the stock market. Neither is risk-free, and the tool does not score risk.
• Both are modelled as bought with cash. Borrowing changes the result substantially and is covered in the Leverage Break-Even Calculator.
• Taxes are flat rates on net income, chosen by you. Real systems differ by country and include allowances, deductions such as depreciation or interest, withholding tax, and different treatment of dividends and gains. Selling costs and taxes on gains are not modelled.
• Costs are held constant. Rent, costs and dividends change over time, and the quoted dividend yield is a past or forecast figure that is not guaranteed.
• The tool compares the arithmetic of the inputs and does not say which investment suits any person.

General information only, not personalised advice. Results are estimates based on the assumptions listed above. Read the disclaimer.