How it works
Gross yield looks purely at rent versus purchase price with no debt. Return on equity (ROE) reflects your actual cash outlay once a loan is involved — when rental income outpaces loan interest, leverage lifts ROE above the gross figure.
FAQ
Q. Is leverage always beneficial?
A. No — if the loan rate exceeds the rental yield, leverage can actually pull ROE below the gross yield. Factor in interest rate risk too.
Q. Does this account for vacancy risk?
A. No — this assumes full-year occupancy. In practice, discount the rent input to account for expected vacancy periods.