This guide explains how to calculate both gross and net yield, what costs to account for, and what Philippine landlords actually earn after expenses.
How to Calculate Gross Rental Yield
Gross yield is the simplest starting point.
Formula
Gross Yield = (Annual Rent ÷ Purchase Price) × 100
Example
Monthly rent: ₱25,000
Annual rent: ₱300,000
Purchase price: ₱5,000,000
Gross yield: ₱300,000 ÷ ₱5,000,000 × 100 = 6%
Gross yield is useful for quick comparisons across properties. It does not reflect what you actually earn because it excludes all ownership costs.
How to Calculate Net Rental Yield
Net yield accounts for the real costs of owning and operating a rental property.
Formula
Net Yield = ((Annual Rent − Annual Expenses) ÷ Purchase Price) × 100
Typical annual expenses include:
- Real Property Tax (RPT)
- Association dues (condominiums)
- Vacancy (lost income during empty periods)
- Property management fees (if outsourced)
- Maintenance and repairs
Net yield is the number that tells you what your investment actually produces.
Typical Gross Yields by Property Type and Location
Condominiums — Metro Manila (BGC, Makati)
Gross yield: 3 to 5%
Strong rental demand from professionals and expatriates, but high purchase prices compress returns.
Condominiums — Cebu IT Park and similar BPO corridors
Gross yield: 4 to 6%
Supported by consistent BPO tenant demand.
House-and-lot — Metro Manila
Gross yield: 2 to 4%
Higher land cost relative to achievable rent compresses yields significantly.
House-and-lot — Provinces (Laguna, Cavite, Pampanga)
Gross yield: 5 to 8%
Lower entry prices improve yield potential, though liquidity is lower.
These are gross figures. Net yields will be lower after expenses — typically 1 to 2 percentage points below gross in most scenarios.
What Reduces Net Yield
Real Property Tax (RPT). Approximately 1% of the property's assessed value per year. Based on the LGU assessment, not market price — which is typically lower. Budget conservatively.
Association Dues (condominiums). ₱3,000 to ₱10,000 per month depending on the building and unit size. This alone represents ₱36,000 to ₱120,000 per year — a significant drag on net yield for lower-priced units.
Vacancy. A conservative assumption for any rental property is at least one month vacant per year. This reduces annual rental income by approximately 8%.
Property Management Fees. If you hire a property manager (standard practice for OFW landlords), expect 8 to 12% of monthly rent.
Maintenance. Repainting between tenants, appliance replacement, plumbing and electrical repairs. Budget ₱10,000 to ₱30,000 per year as a baseline for a standard unit.
Tax on Rental Income
This is the cost most Philippine landlord guides omit entirely.
Rental income in the Philippines is subject to income tax. The applicable rate depends on your total annual income:
- Individual landlords earning below ₱3,000,000 per year may elect an 8% flat tax on gross receipts (in lieu of graduated rates and percentage tax)
- Or use the graduated income tax table (0 to 35% depending on total income)
You are also required to register as a lessor with the BIR, issue official receipts to tenants, and file quarterly income tax returns.
Compliance gap
The BIR has increased audit activity in rental income declaration. Net yield after income tax is typically 0.5 to 1.5 percentage points lower than before-tax net yield. Consult a licensed accountant for your specific situation.
Furnished vs. Unfurnished
Furnished units can command 20 to 40% higher rent, but come with:
- Higher wear and tear on fixtures and appliances
- More frequent unit turnover
- Higher maintenance expense
Unfurnished units have lower rent and typically attract longer-term tenants with simpler maintenance requirements. The better choice depends on your target tenant profile and how actively you can manage the property.
Short-Term Rentals (Airbnb and Similar)
Short-term rentals can generate higher income per night, particularly in tourist or business travel corridors, but carry real constraints:
- Many condominium associations explicitly prohibit short-term rentals in their HOA bylaws
- Some LGUs require registration and permits for short-term rental operations
- High operational involvement: cleaning, guest turnover, maintenance between stays
- Income is less predictable than long-term rentals
Always verify your building's rules and the local regulatory environment before pursuing this strategy.
Worked Example: ₱5,000,000 Condominium
Assumptions: Purchase price ₱5,000,000 | Monthly rent ₱25,000 | Annual gross rent ₱300,000
- Gross Yield:
₱300,000 ÷ ₱5,000,000 × 100 = 6%
- Deduct Annual Expenses:
Vacancy (1 month): −₱25,000
Association dues (₱5,000/month × 12): −₱60,000
RPT (estimated): −₱20,000
Maintenance: −₱10,000
Total expenses: ₱115,000 - Net Income:
₱300,000 − ₱115,000 = ₱185,000
- Net Yield (before income tax):
₱185,000 ÷ ₱5,000,000 × 100 = 3.7%
- Income tax (8% flat on gross receipts):
₱300,000 × 8% = ₱24,000
Net income after tax: ₱185,000 − ₱24,000 = ₱161,000
Net yield after tax: ~3.2%
This is what you actually earn. 6% gross becomes 3.2% net after realistic expenses and tax. This is not a reason to avoid the investment — but it is the accurate number to plan around.
Key Takeaways
- Gross yield is for comparison — net yield is for planning
- Association dues, RPT, vacancy, and management fees significantly reduce actual income
- Income tax on rental earnings is a real cost that most yield guides ignore
- Location and property type directly determine the yield range available to you
- Furnished and short-term strategies require active management and carry higher costs