Annual yield, cash flow, and return on equity for an Irish rental property.
Annual net yield
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Gross yield
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Annual cash flow
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Tax on rental profit
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Return on equity
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Your breakdown
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Gross yield is a starting point, not the answer
Estate agents quote gross yield because it looks attractive. Gross yield is annual rent divided by purchase price. A flat bought for 350,000 euro renting at 18,000 euro per year has a gross yield of 5.1%. That sounds reasonable, but it tells you nothing about what you actually keep. The costs come off in layers: expenses including agent fees, insurance, and maintenance; mortgage interest that is allowable as a deduction; the non-interest capital element of mortgage payments which is not deductible; income tax on the net profit at your marginal rate; and the opportunity cost of your deposit compared with other investments.
This calculator works through all those layers. The net yield figure it shows is annual rent minus all costs (including tax) expressed as a percentage of purchase price. Return on equity does the same calculation but divides by your deposit rather than the full price, which reveals how well your own capital is being deployed. High leverage amplifies both the return on equity and the cash flow risk if the property sits vacant.
Worked example: 350,000 euro property, 18,000 euro rent
Purchase price 350,000 euro, 25% deposit of 87,500 euro, annual rent 18,000 euro, annual mortgage payments 14,400 euro (1,200/month), of which 7,000 euro is interest, other expenses 3,000 euro, marginal rate 52%. Taxable rental profit: 18,000 minus 7,000 interest minus 3,000 expenses = 8,000 euro. Tax at 52%: 4,160 euro. Cash flow: rent 18,000 minus total mortgage 14,400 minus non-interest expenses 3,000 minus tax 4,160 = negative 3,560 euro. The gross yield looks fine at 5.1% but the after-tax cash flow is negative. Many Irish landlords are in exactly this position, particularly those with older mortgages at higher rates or those paying the top rate.
The leverage question
A property with a 25% deposit means 75% of the asset is funded by the bank. If the property value rises 5% per year, the return on your equity is not 5% but much higher because the gain accrues on the full property value while only your deposit is at risk in cash terms. This is why property investment can outperform on a return on equity basis even when the cash flow is flat or modestly negative. The risk is the symmetric one: a 10% fall in value wipes out 40% of your deposit at 25% down, so leverage amplifies losses as reliably as it amplifies gains.
Frequently asked questions
What is a good rental yield in Ireland?
Gross rental yields in Ireland vary significantly by location. Dublin city centre typically yields 3 to 5 percent gross, while provincial cities like Cork and Limerick can offer 5 to 7 percent. Rural areas and smaller towns may show higher headline yields but with more vacancy risk. Net yield, after all costs and tax, is typically 1 to 2 percentage points below gross. An investor comparing against other asset classes should focus on net yield after tax rather than the gross figure advertised.
Is mortgage interest deductible against rental income in Ireland?
Yes. Since 2019, 100% of mortgage interest on a residential rental property is deductible from rental profits, provided the tenancy is registered with the Residential Tenancies Board. Only the interest element of each mortgage repayment is allowable, not the capital repayment. The deduction must be claimed on the annual Form 11 self-assessment return, and failure to maintain RTB registration can result in Revenue disallowing the entire interest deduction for that year.
What expenses can I deduct from Irish rental income?
Allowable deductions include mortgage interest (100%), letting agent fees, landlord insurance, maintenance and repair costs, management fees, RTB registration fees, accountancy fees, and capital allowances of 12.5% per year on furniture and fittings over eight years. Improvements that add value rather than just maintain the property are capital expenditure written off over eight years, not deductible in full in the year incurred. The purchase price, stamp duty, and solicitor fees at acquisition are base cost for CGT purposes, not rental deductions.
How do I calculate return on equity for a rental property in Ireland?
Return on equity is the annual pre-tax or after-tax cash flow divided by the equity you have in the property, expressed as a percentage. Equity is the current value minus the outstanding mortgage balance. As the mortgage is paid down and the property value changes, your equity grows, and a fixed rental profit generates a declining return on equity over time. Comparing return on equity rather than return on cost gives a more accurate picture of whether the property is a better or worse use of your capital than alternative investments.