Calculate your actual rental yield
Profitability is at the heart of any real estate investment. Even before choosing a property, any investor must be able to assess how much their project can yield and at what cost. It is this calculation that determines whether a rental investment is truly interesting or if it risks becoming a financial burden.
In real estate, several levels of profitability exist: gross profitability, net profitability, and net-net profitability. Each provides a more precise view of the actual performance of a property, gradually integrating charges, taxation, and ancillary costs (notary fees, work, management…).
The fundamentals of profitability calculation
Gross return: a first simple but limited indicator
The gross return is the most well-known and frequently used calculation by first-time investors. It consists of relating the annual rents received to the total acquisition cost of the property.
Formula: Gross return = Annual rent / Total Acquisition Costs × 100
Example: if you buy an apartment for €200,000 with €10,000 in notary fees and rent it for €800 per month (€9,600/year), your gross return will be 4.57%
This is a simple and quick indicator, ideal for comparing several properties against each other. But beware: it does not take into account charges, taxes, or financing costs.
Net return: incorporating charges
The net return refines the calculation by subtracting all the recurring charges related to the property: property tax, non-recoverable condominium fees, insurance, property management fees…
Formula: Net return = (Annual rent − Annual charges) / Total Acquisition Costs × 100
Example: if your annual charges (property tax, insurance, maintenance) amount to €2,000, your net rent is €7,600. With the same purchase price (€210,000), your net return will be 3.61%.
This indicator is much closer to reality because it includes unavoidable expenses that weigh on your rental income.
Net-net return: true profit after taxes
Finally, the net-net return (also called post-tax net return) is the most accurate indicator. It includes not only the charges but also the impact of taxation. Depending on your regime (micro-property, LMNP, real regime, Pinel…), taxes can significantly vary your actual return.
Concrete example:
Rental income: €9,600/year
Charges: €2,000/year
Taxable result: €7,600
Taxation (30% + 17.2% social contributions) = €3,565
Net-net income = €4,035
The net-net return then drops to only 1.92% (compared to 4.57% gross). That’s why it is essential to anticipate the taxation of your investment before buying.
Leading indicators for savvy investors
Cash Flow: The Actual Cash Generated by Your Asset
The cash flow is the preferred indicator for experienced investors. Unlike profitability, which expresses a percentage, cash flow measures how much you have left in euros each month after all expenses are paid: loan payment, property tax, insurance, management fees, maintenance…
Formula: Cash flow = Rent collected - (loan payments + Charges + Taxes)
Example: an apartment that generates €800 in rent, with a loan payment of €600 and €150 in charges + taxes, generates a positive cash flow of €50 per month.
A positive cash flow means that your investment brings you money every month. Conversely, a negative cash flow indicates that you need to supplement it with your personal income. This indicator best reflects the reality experienced by the investor: does the asset self-finance or weigh on your personal finances?
Internal Rate of Return (IRR): Measuring Overall Performance
The IRR is a more technical tool, but remarkably effective for comparing multiple investments. It measures the overall profitability of the project by taking into account:
cash flows (positive or negative cash flows each year),
the initial investment,
the final resale of the asset.
The IRR incorporates all these flows to provide a global performance percentage. It is a widely used indicator in finance to assess whether a project deserves investment. In other words, the IRR answers the question: “What overall return rate does this investment generate over its entire lifespan?” .
The key factors that directly influence your rental profitability
The location: pillar no. 1 of rental demand and rents
In real estate, the location of your property conditions almost everything: the level of rents you can charge, rental vacancy, the type of tenants attracted, and even the future appreciation of the property. An apartment in the city center, close to transport, universities, and shops, will be much easier to rent than a property located in the outskirts.
Similarly, a tight area, where demand exceeds supply, guarantees stable rents and nearly continuous occupancy.
Investing in a good location secures your rents today and prepares for a capital gain tomorrow.
The purchase price and additional costs (notary fees, renovation, agency)
The purchase price is not limited to the amount displayed by the seller. You should always include notary fees, any potential agency fees, as well as the necessary renovation costs to bring the property up to standard or optimize it. These fees can represent 7 to 10% of the acquisition price in the old market, which directly impacts your gross profitability.
Example: an apartment listed at €150,000 may actually cost you €165,000 once the fees are included. If you neglect these items, your profitability calculation will be skewed from the start.
Managing charges and expenses: anticipate and optimize each item
A good investor does not simply look at rents; they also anticipate all the charges related to the property:
property tax,
condominium fees,
non-occupying owner insurance,
rental management,
regular maintenance and compliance renovations.
These expenses mechanically reduce your net profitability. However, they can be optimized: renegotiating insurance, comparing managers, carrying out energy renovations eligible for assistance… Every saving made directly enhances your rental yields.
Financing (mortgage): leverage effect and actual cost
Financing plays a central role in profitability calculations. Thanks to a mortgage, you can acquire a property with a limited contribution and use the rents to repay part of the monthly installments. This is the leverage effect of credit. However, the cost of financing (interest rate, insurance, processing fees) can increase the bill and reduce your margins. Hence the importance of negotiating your mortgage and adapting the term of the loan to your strategy (short-term positive cash-flow vs long-term value maximization).
Taxation: LMNP status, real regime, tax systems
Taxation is often the most underestimated factor by novice investors. Yet, it can turn a project from profitable to unprofitable.
The LMNP status in the real regime allows for property depreciation and significantly reduces, or even eliminates, taxation on your rents.
The property loss is interesting if you undertake significant renovations, as it can reduce your property and overall taxes.
The Pinel scheme, on the other hand, offers a tax reduction, but with constraints on rent and rental duration.
Choosing your tax regime wisely means maximizing net-net profitability and transforming an average project into a high-performing investment.
Strategies to optimize and boost your profitability
Choose the right type of property and rental
The type of property and the rental method directly influence your rents and therefore your rental yields.
The unfurnished rental offers more stability with 3-year leases, but rents are often lower.
The furnished rental allows for higher rents and benefits from the LMNP status, which is very advantageous tax-wise.
The shared rental maximizes profitability on larger spaces, by renting each room separately.
The short-term rental (Airbnb, seasonal) generates higher income, but requires more active management and is heavily regulated in certain cities.
The trick is to choose the type of rental that is best suited to the area where you are investing: a furnished studio close to a university does not rent the same way as a T4 in a family suburb.
Mastering costs and negotiating each item
Every euro saved on your charges mechanically increases your profitability. This involves:
negotiating the purchase price right from the acquisition,
the wise choice of craftsmen and service providers for your work,
comparing borrower insurance and unpaid rents,
optimizing management fees (agency, syndic, digital platform).
Practical advice: simulate your project by integrating different scenarios (higher charges, rental vacancy, interest rate increases). This will help avoid unpleasant surprises and strengthen your safety margins.
Do not overlook the capital gain on resale: a component of overall profitability
Many investors focus solely on rents and forget that the capital gain is a key component of overall profitability. A property purchased in a growing area (renovation neighborhood, arrival of a subway, urban project) can generate, in addition to rents, a substantial gain upon resale.
What is a "good" rental yield?
Forecasted Profitability vs. Actual Profitability
A common mistake for first-time investors is to focus only on the forecasted profitability. This is calculated before the purchase, based on often optimistic assumptions: rents without rental vacancy, minimized charges, neglected taxes. Actual profitability, on the other hand, is measured over time: rents actually received, unexpected charges (work, repairs), changes in local taxes or tax regimes. It is often lower than expected, but it reflects the reality of your cash flow.
Practical advice: systematically compare your forecasts to your actual results each year. This allows you to adjust your strategy, review your rents, or renegotiate certain costs.
Common Traps to Avoid
Three mistakes are often repeated by beginner investors:
Overestimating rents: relying on online listings without checking the rents actually charged in the neighborhood can completely distort a profitability calculation.
Forgetting certain charges: property tax, management fees, homeowner’s insurance, rental vacancy… all elements that reduce your net income.
Underestimating the tax impact: a poorly chosen regime (micro instead of actual, for example) can halve your net-net profitability.
Anticipating these traps is the guarantee of building a solid and profitable project in the long term.
Conclusion: Your roadmap for a profitable rental investment
Calculating the profitability of a rental investment is not a simple mathematical exercise: it is the heart of any successful real estate strategy. From gross profitability, useful for quickly comparing properties, to net-net profitability, which reveals the actual profit after taxation, each indicator provides complementary insights. The most astute investors also rely on advanced tools like cash flow, and IRR to measure performance over time.
But profitability does not only depend on formulas: it is influenced by location, the acquisition price and its ancillary fees, management costs, financing, and of course taxation (LMNP, real regime, schemes like Pinel or property deficit). Each of these levers can transform an average project into a profitable investment.
Good profitability is not a single number. It should be tailored to your profile, goals, and risk tolerance. For some, a net yield of 4% with delegated management will be enough to secure a portfolio. For others, aiming for 8 to 10% in shared housing or short-term rentals will be the objective, even if it requires dedicating more time and energy to management.
The key is to maintain a comprehensive, realistic, and structured approach. Before buying, take the time to simulate your rents, your expenses, your taxes, and your cash flow. Avoid classic pitfalls (overestimation of rents, underestimation of expenses, poorly anticipated taxation) and always compare your projections with what is actually happening in the market.
