Property is marketed on gross yield — annual rent divided by purchase price. It is a useful screening number and a poor decision number, because it omits every cost of owning and operating the asset.
The figure that matters is net yield, and the gap between them is large and predictable.
| Gross yield | annual rent divided by price |
|---|---|
| Net yield | rent minus all operating costs, divided by total acquisition cost |
| Typical gap | substantial — often around half |
| Biggest omissions | vacancy, maintenance, insurance, management |
Building the net figure
Start with the same rent, then work through what it has to cover.
Vacancy. No property is occupied every day of every year. Between tenants there are void periods, and in seasonal short-let markets the off season is structural rather than occasional.
Assume a realistic occupancy rate rather than full occupancy. This single adjustment removes more optimism than any other.
Maintenance and repairs. Routine upkeep plus the periodic replacement of major elements — roof, water systems, appliances, exterior finishes.
In a coastal tropical environment this is materially higher than in a temperate one. Salt air corrodes metal, ultraviolet degrades finishes, humidity encourages mould, and heavy rain finds every weakness. Maintenance intervals are shorter and the consequences of deferring are faster.
Budget a realistic annual percentage of property value and treat it as a genuine cost, not a contingency you hope not to use.
Insurance. In a storm-exposed region this is a significant recurring cost, with the deductible structures covered elsewhere on this site.
Property tax and statutory charges.
Management. Whether you pay an agent a percentage or do it yourself, this is a cost. If you do it yourself, your time is not free — and for an overseas owner, self-management is usually impractical.
Utilities and services where the owner bears them, plus common area costs in a shared building.
Furnishing and replacement for furnished lettings, which wear faster than owners expect in short-let use.
Letting costs — advertising, tenant checks, platform commissions for short lets.
And the denominator is wrong too
Gross yield divides by the purchase price. Your actual outlay was larger.
- Transfer taxes and stamp duties
- Legal fees and searches
- Survey costs
- Any licence fee required for non-national ownership
- Initial works to bring the property to lettable standard
- Furnishing
Using total acquisition cost rather than headline price lowers the yield further — and it is the honest figure, because that is the capital actually committed.
Long-let and short-let are different businesses
The choice changes the economics fundamentally, and each suits different owners.
Long-term letting: lower gross yield, but far lower cost and effort. One tenant, stable income, minimal turnover cost, tenant usually covers utilities.
Short-term letting: higher gross yield, and much higher costs — cleaning between stays, higher utilities, furnishing wear, platform commission, active management, and strong seasonality.
Two points that decide the comparison:
Short-let net yield is far closer to long-let than the gross figures suggest. Once cleaning, commission, utilities, higher maintenance and vacancy in the off season are counted, much of the apparent advantage disappears.
Short letting is a business, not an investment. It requires continuous attention — pricing, responding to enquiries within minutes, coordinating cleaning, handling problems at inconvenient hours. Delegating it to a manager costs a meaningful share of revenue, which is the honest price of turning it back into a passive holding.
Also check the regulatory position for short lets, which is tightening in many places, along with any restrictions in the building's own rules. As noted elsewhere on this site, this is a rule set that has changed quickly in a number of destinations.
Sensible practice
- Calculate net yield on total acquisition cost, with realistic occupancy
- Obtain actual figures from comparable properties rather than agent projections
- Include a maintenance reserve as a fixed annual cost
- Model a bad year — poor occupancy, a major repair, an insurance deductible — and check you could carry it
- Consider currency: if you borrow in one currency and earn rent in another, that is exchange risk
- Have an exit view — in a small market, selling can take considerably longer than in a large one
Point six is the constraint most often overlooked. The buyer pool for a given property in a small market is small, so liquidity is limited and a sale may take many months. That should affect how much of your capital you are willing to place there.
Frequently asked questions
Why is gross yield misleading?
Because it omits every cost of owning and operating — vacancy, maintenance, insurance, management, letting costs — and it divides by the purchase price rather than the total capital committed.
Why is maintenance higher in a coastal tropical setting?
Salt air corrodes, ultraviolet degrades finishes, humidity encourages mould and heavy rain finds every weakness — so intervals are shorter and deferring costs more.
Is short letting more profitable than long letting?
Less than the gross figures suggest. After cleaning, commission, utilities, wear and off-season vacancy, much of the advantage disappears — and it is a business requiring continuous attention rather than a passive holding.
What constraint do buyers most often overlook?
Liquidity. The buyer pool in a small market is limited, so a sale can take many months — which should affect how much capital you place there.
