A listing that says “7% yield” has usually divided one year's rent by the asking price. The figure is not wrong. It is the gross number, before the costs that decide what you actually earn.
When a client brings us a listing like this, we rebuild the number from the ground up. In most cases it lands clearly below 7% — which does not make it a bad investment, only a differently priced one.
Gross yield and net yield
Gross yield is annual rent divided by price. Net yield is what is left of the rent after running costs, divided by everything you paid to own the property — not the price alone. The distance between the two is where most investment disappointments begin. A common mistake is to compare one property's gross yield with another's net yield, so the first looks better when it is not.
The costs between 7% and your account
The first two raise what you pay; the last three reduce what you receive. None of them appears in the advertised figure. And because the rent in many listings is an expected rent rather than an existing contract, the figure can sit above market before a single cost is counted.
A worked example
Take a unit priced at SAR 1,000,000 that rents for SAR 70,000 a year — a 7% gross yield. The transaction tax alone adds SAR 50,000, so the capital you have put in is at least SAR 1,050,000 before transfer fees. On the income side, management at 5% of rent is SAR 3,500. If we allow one month without a tenant (about SAR 5,800) and set aside SAR 3,500 a year for maintenance — both illustrative assumptions, not fixed rates — net rent falls to about SAR 57,200.
SAR 57,200 divided by SAR 1,050,000 gives a net yield of about 5.4%. The unit has not changed; the arithmetic has simply become honest. Add the transfer fees and any purchase commission and it falls a little further.
The advertised yield tells you what the property could earn. The net yield tells you what you will.
If the purchase is financed
With financing, compare the net yield with the cost of the money. At the indicative 4.2% profit rate we use for estimates, over 20 years with 15% down, the annual instalments in this example come to more than the SAR 57,200 net rent. The bank sets the final instalment after assessing income and obligations, so run the numbers on its actual offer.
That does not rule the deal out. It means the return depends on rent growth and on the property's value when you sell, and that you should decide deliberately whether you are buying income or buying an asset. In that case what matters most is that you can cover the monthly gap from your own income comfortably — for years, not months.
Practical takeaway
A 7% figure is real when it is net: after tax, fees, management, vacancy and maintenance, and divided by the full capital you put in. Ask for the current lease registered on Ejar rather than an expected rent, and rebuild the costs yourself. And remember the price itself is negotiable: in 68% of our deals the price closed below asking, and every riyal off the price raises the yield.