Investment approach
Rental yield: which assumptions to demand from any calculation
A yield percentage without assumptions cannot be compared with anything. A map of assumptions, what confirms each, a worked example with 4.8% and 2.5% on one flat, and the October rent-rule changes.
Rental yield is the result of assumptions about the entry price, rent, vacancy, costs, taxes and exit, not a property of the flat. In October 2026 the rules behind some of them changed: for example, under Real Decreto-ley 29/2026 (a royal decree-law) the annual rent update cannot exceed the IRAV index (the reference index for housing rent updates), and for reviews up to 31 December 2027, absent a new agreement, rent rises by no more than 2% (BOE). The Congress of Deputies has not yet validated the decree.
Why a single yield percentage tells you nothing
A single figure without a base does not answer the main questions: is it gross or net, calculated on the listing price or on the full entry cost, with vacancy or with the flat let for all twelve months. Two calculations for the same flat on different assumptions diverge by almost a factor of two, and both are formally correct.
Gross yield divides annual rent by the price. Net yield subtracts all the costs of ownership from the rent and divides the remainder by the full entry cost, including taxes, conveyancing and refurbishment. The formulas and the full list of deductions are covered in the article on net rental yield. The subject here is different: which premises must stand next to the figure, and what verifies them.
Which assumptions any calculation must disclose
Every line of a calculation must have a source: a transaction, a contract, a receipt, a specialist's opinion or an assumption clearly labelled as such. If there is no source, the line is treated as an assumption.
| Assumption | What to disclose | What confirms it |
|---|---|---|
| Entry price | Price, purchase tax, conveyancing, refurbishment, furniture | Closed transactions on comparables, the ITP scale (transfer tax on resale property) (ATC) |
| Rent | Monthly amount and where it comes from | Current contracts for similar flats, not listings |
| Vacancy | How many months a year the flat stands empty | The property's letting history, or an assumption labelled as such |
| Rent growth | Annual percentage and the legal basis | The contract's indexation clause, the LAU (Ley 29/1994 de Arrendamientos Urbanos) in its current wording |
| Costs | IBI, comunidad, insurance, management, reserve | Receipts, comunidad minutes, the policy |
| Income tax | The owner's tax status | The opinion of an asesor fiscal (tax adviser) |
| Exit | Term, price, selling vacant or with a tenant | Transactions on comparables, the terms of the lease |
A rent taken from listings shows what owners ask, not the price at which flats actually let. If the property is in a zona tensionada (a stressed-market area), the rent is capped by rules; the analysis is in the article on the rent cap.
What the October 2026 decrees changed
Three assumptions that used to be taken by default now have to be checked against the text of the rules. The Congress of Deputies has not yet validated either decree, so before deciding the current wording is checked with a lawyer.
Rent growth. Under the new wording of article 18.1 LAU (RDL 29/2026, in force from 8 October 2026), without an express clause in the contract rent is not indexed at all, and with a clause the annual increase cannot exceed the change in the IRAV index. Under the disposición final sexta (sixth final provision) of the same decree, for reviews up to 31 December 2027 rent does not rise above the upper limit of the state price index, and in other cases, absent a new agreement, the increase is no more than 2%.
Tax on rental income. For tax residents who are not grandes tenedores (large holders), the decree changes the reduction of taxable rental income from housing under article 23.2 LIRPF (the personal income tax law). For contracts signed after 1 December 2026, on re-letting the reduction will be 50% if the rent is no higher than before, 70% to 100% if it is cut by more than 5%, and 40% to 15% if it rises. Which share applies to a specific contract is for an asesor fiscal to calculate.
Exit with a tenant. From 15 November 2026 under Real Decreto-ley 28/2026 (BOE), a lease of a main residence, after five years (seven if the landlord is a legal entity), is extended compulsorily for equal periods unless the parties give notice that they will not renew: the owner at least six months ahead, the tenant two. If the owner refuses to extend, they pay the tenant the larger of two amounts: twelve monthly rents at the upper limit of the state index, or one such rent for each year of residence. When the flat is sold, this obligation passes to the buyer. The scenario "in five years we sell it vacant" is incomplete without this line.
How the assumptions change the result
Worked example, not a forecast. A flat for 300,000 €, ITP of 10% on the part of the price up to 600,000 € (30,000 €), and conveyancing with minor refurbishment of 10,000 € (assumption), 340,000 € in all. Rent in the listing 1,200 € a month.
| Scenario | Rent per year | Costs | Base | Yield before tax |
|---|---|---|---|---|
| Advertised: 12 months, no costs | 14,400 € | 0 € | 300,000 € price | 4.8% |
| Base: 11 months, ownership costs | 13,200 € | 2,400 € | 340,000 € entry | about 3.2% |
| Cautious: 1,150 € per contracts, 10 months | 11,500 € | 3,000 € | 340,000 € entry | 2.5% |
It is one flat, and the result differs by almost a factor of two. The example does not account for rent growth or the sale price: they are added as separate lines, each with its own basis.
How to check a calculation you have been handed
The check can be done independently if you go in order.
- Ask for a table of assumptions with a source for each line.
- Recalculate the denominator: price plus purchase tax, conveyancing and refurbishment.
- Replace the rent from listings with the rent from current contracts.
- Add a month or two of vacancy and a reserve for repairs.
- Check the indexation clause and the exit rule against the current wording of the LAU.
- Hand the tax line to an asesor fiscal and any doubts about the contract to an abogado (lawyer).
The signs of an offer better put off are collected in the article how to read an offer to invest in property.
When a rental yield calculation does not fit
It does not fit a refurbish-and-resell project: there the result is decided by the exit price, the term and the taxes on the gain, and the typical omissions are covered in the article on mistakes in an investment project calculation. It does not fit short-term tourist letting without a verified licence: income one has no right to is not put into a calculation.
It also does not work for a flat with a tenant bought to sell vacant: the income and the exit term are set by someone else's contract, not by assumptions. DNPI carries out a separate breakdown of the assumptions for a specific property as part of its investment analysis.
Questions and answers
How do I correctly calculate the yield on a flat for letting?
Annual rent less vacancy and all costs of ownership, with the remainder divided by the full entry cost including purchase tax, conveyancing and refurbishment. Tax on rental income is calculated separately, because it depends on the owner's status.
Can I assume rent growth of 3% a year?
Since 8 October 2026 under RDL 29/2026, the increase in an annual update cannot exceed the IRAV, and until the end of 2027, absent a new agreement, it is capped at 2%. Without an indexation clause in the contract, rent does not rise at all. The Congress of Deputies has not yet validated the decree.
Why is the yield in a listing higher than in my own calculation?
Usually the listing gives a gross figure: rent for all twelve months divided by the price before taxes and refurbishment. In the worked example the same flat gives 4.8% in the advertised version and 2.5% in the cautious scenario.
What should I ask a seller who shows a yield?
What amount it was calculated on, where the rent comes from, how many months of vacancy are built in, which costs were deducted and whether there is a lease in force. A refusal to show the assumptions is already an answer.
