There comes a moment in every conversation with an investor when two figures appear on the table: gross yield and net yield. The first arrives quickly, often in the listing itself. The second requires a calculation that is sometimes put off for too long. Yet it is the net yield that tells you whether a deal holds up — and it is the one the bank will look at before agreeing to finance.
Understanding the difference between gross yield and net yield in property investment is not a matter of jargon. It is a matter of real money: rents collected, costs absorbed, and decisions made with open eyes.
Gross yield
Gross yield is the ratio of theoretical annual rents to the acquisition price. If a building is purchased for CHF 2,400,000 and the leases represent CHF 120,000 in annual rent, the gross yield is 5%. The calculation is straightforward, the figure is clean, and that is precisely why it circulates so easily.
But this figure says nothing about the expenses that will eat into those CHF 120,000. It assumes everything is let, everything is paid, and nothing costs anything. No building works like that.
Gross yield does have its uses: it allows you to compare properties of the same type quickly, within the same market. A yield property in Lausanne listed at 4% gross and another in Vevey at 5.2% gross do not speak of the same risk or the same asset quality at all — but at least both parties are speaking a common language to start the conversation.
Net yield
Net yield deducts from the gross rents all the costs borne by the owner, then relates that balance to the purchase price. These costs generally include:
- maintenance and repair expenses;
- insurance premiums, including the compulsory ECA insurance in the canton of Vaud;
- condominium charges or property management fees if the building is managed by a third party;
- property taxes depending on the commune;
- a provision for vacancy and doubtful debts.
In practice, costs often represent between 20% and 30% of gross rents, depending on the age of the building, its condition, and how it is managed. Taking the earlier example: if CHF 28,000 in annual costs are charged against the CHF 120,000 in rents, the net income falls to CHF 92,000. The net yield then comes to 3.83%. The property has not changed. The figure, however, now says something true.
Some investors also refer to a net-net yield, which additionally incorporates the tax burden — income tax on rental income. That level of precision belongs to the work of your tax adviser or fiduciary, as it depends entirely on your personal situation.
What the bank looks at
When a financial institution analyses a yield property, it builds its own operating account. It does not use your gross yield, and often not your calculated net yield either. It applies its own cost assumptions, its own normative vacancy rates, and compares the net income it arrives at against the theoretical mortgage cost.
The logic is close to that of financing a primary residence: the bank satisfies itself that the building alone can absorb the debt service under a scenario with higher rates than those prevailing at the time of purchase. A net yield that is too low, even on a fine building, can block financing or require equity above the usual 20%.
For yield properties, the equity required is often higher than for a primary residence, and conditions vary between lenders. Check with your bank or mortgage broker before going further.
Common pitfalls
Three mistakes come up regularly when calculating the net yield of a building.
Theoretical rents rather than actual rents. A building may show a potential rent based on current leases, but if some of the flats have been let at below-market levels for ten years, or existing tenants are paying rents well below the market rate, the theoretical rent will never be collected in the short term. In the canton of Vaud, the conditions for rent increases are regulated, in particular by the reference mortgage rate (taux de référence hypothécaire) published each quarter by the Federal Housing Office. Bringing rents up to market levels takes time.
Upcoming works not provisioned. A building from 1975 with an original roof and original technical installations does not have the same effective net yield as a renovated one. Renovation works are tax-deductible, but they come out of cash flow first. A serious technical audit before purchase will put a figure on these needs and allow you to adjust the offer price or provision for them properly.
Purchase costs forgotten in the calculation base. In French-speaking Switzerland, the buyer bears the property transfer duties (droits de mutation), notary fees, and the land register fee — generally 4% to 5% of the price, depending on the commune and the cantonal share. These costs form part of the true cost of the investment and deserve to be included in the denominator of the yield calculation.
Calculate before you visit
A yield property is read first in the figures, before any visit takes place. Ask for a breakdown of rents by unit, the expense accounts for the past two or three years, a list of recent works, and the full tenancy schedule with each tenant's entry date. These documents will allow you to build your own net yield before making an offer.
To take this analysis further, the property yield calculator lets you enter the figures and quickly see where the net reality of a property stands. And if you are looking to compare a building's yield against its market value, a detailed valuation with comparable sales listed line by line provides a solid reference point for negotiating with full knowledge of the facts.
Gross yield opens the conversation. Net yield makes the decision.
The real question is not whether a building produces a return — it is what it produces once everything is paid, and whether that balance holds up under a less favourable scenario. That depends on the condition of the property, the profile of the tenants, the actual costs, and how you finance the acquisition. Alexandre works regularly on yield properties in French-speaking Switzerland and can help you read a tenancy schedule, set the right cost assumptions, and build an offer that stands up both to the bank and to the seller.
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