# Gross Rental Yield for Short-Term Rentals — Formula, Calculator, and Benchmarks

> Gross rental yield measures annual rental income as a percentage of property price — before expenses. Learn the formula, how to benchmark it, and why it is different from cap rate.

Canonical: https://www.underwriteapp.com/learn/gross-rental-yield


## Definition

**Gross rental yield** (GRY) is the ratio of a property's annual rental income to its purchase price, expressed as a percentage — before deducting any operating expenses.

$$\text{Gross Rental Yield} = \frac{\text{Annual Rental Income}}{\text{Property Purchase Price}} \times 100$$

It answers a simple question: **for every dollar I pay for this property, how many cents in gross rent do I collect each year?**

GRY is intentionally simple. It ignores expenses, financing, and vacancy — which makes it fast to calculate and easy to compare across markets, but incomplete for making a final buy decision.

## Formula and Worked Example

**Property:** 2-bedroom cabin, Smoky Mountains, TN  
**Purchase price:** $380,000  
**Estimated nightly rate (ADR):** $195  
**Estimated occupancy:** 68%

### Step 1 — Calculate annual rental income

Annual Income = ADR × Occupancy Rate × 365

$$\$195 \times 0.68 \times 365 = \$48,399$$

### Step 2 — Divide by purchase price and multiply by 100

$$\text{GRY} = \frac{\$48,399}{\$380,000} \times 100 = \mathbf{12.7\%}$$

This property generates 12.7 cents in gross rent for every dollar of purchase price — a moderate yield that warrants deeper analysis before committing.

## Gross Rental Yield vs. Cap Rate vs. Cash-on-Cash

These three metrics are often confused. They measure different things at different stages of analysis.

| Metric | What It Measures | Includes Expenses? | Includes Financing? | Best Used For |
|--------|-----------------|-------------------|--------------------|--------------------|
| **Gross Rental Yield** | Revenue ÷ Price | No | No | Quick market screening |
| **Cap Rate** | NOI ÷ Property Value | Yes (operating) | No | Comparing properties independently of financing |
| **Cash-on-Cash Return** | Annual cash flow ÷ Cash invested | Yes (all) | Yes | Evaluating your actual return as a leveraged investor |

The key rule: **use GRY to screen, cap rate to compare, and cash-on-cash to decide.**

A property with a 20% GRY might have a 9% cap rate after expenses — and a 5% cash-on-cash return after mortgage payments. That progression from gross to net is what the analysis is really about.

## Benchmarks by Market Tier

| Market Tier | Example Markets | Typical GRY Range |
|-------------|-----------------|------------------|
| Tier 1 — High-cost coastal | Hawaii, Malibu, Miami Beach | 8–13% |
| Tier 2 — Popular leisure | Smoky Mountains, Blue Ridge, Poconos | 12–20% |
| Tier 3 — Secondary/emerging | Smaller lake towns, rural cabins | 18–28% |
| Urban short-term | Nashville, Austin, Denver (urban core) | 10–16% |

Higher GRY in a market reflects lower property prices relative to rental income, not necessarily better investment quality. Tier 3 markets often come with higher vacancy risk, more seasonal concentration, and less liquidity at exit.

As a screening filter: **GRY below 12% typically requires exceptional appreciation assumptions to pencil; GRY above 20% in a stable market is worth investigating immediately.**

## Limitations of Gross Rental Yield

**It ignores all expenses.** STR operating costs typically consume 40–55% of gross revenue — platform commissions, cleaning, supplies, property management, insurance, taxes, utilities, and maintenance. A 20% GRY can easily become a 9% cap rate after expenses.

**It ignores financing.** GRY says nothing about your actual cash return as a borrower. A property with a 14% GRY and a 7% mortgage might generate minimal or negative cash flow depending on your down payment and loan terms.

**It ignores vacancy beyond your estimate.** The occupancy figure you plug into GRY is a projection. Seasonal markets, new STR regulations, and local competition can compress it significantly.

**It ignores property-specific costs.** Higher-end properties often have higher ADRs but also higher cleaning costs, more frequent maintenance, and higher insurance premiums. GRY treats all revenue the same regardless of the property profile.

Use GRY as the first filter — not the last one. Once a market or property clears your GRY threshold, move to [what-is-cap-rate](/learn/what-is-cap-rate) and [cash-on-cash-return](/learn/cash-on-cash-return) before making any offer.