How to Calculate Real Estate Investment Returns

Why Calculate Returns Before Investing?

Investing in real estate without accurately calculating returns is like flying a plane without instruments. Too many investors rely on the gross yield quoted by agencies, which does not reflect the true economics of the investment. In Belgium, high acquisition costs (registration fees of 12.5% in Wallonia and Brussels, 3% in Flanders) and specific taxation make calculation even more crucial.

Four key indicators allow you to fully assess a real estate investment: gross yield, net yield, cash-on-cash return, and internal rate of return (IRR). Let us look at each in detail with concrete examples.

Gross Yield: The First Filter

Formula

Gross yield = (Annual rent / Purchase price) × 100

This is the simplest and quickest indicator to calculate. It allows you to quickly compare different properties, but it does not account for charges or acquisition costs.

Worked Example

You buy an apartment in Liege for 180,000 euros. Monthly rent is 850 euros.

• Annual rent: 850 × 12 = 10,200 euros
• Gross yield: (10,200 / 180,000) × 100 = 5.67%

In Belgium, a gross yield of 4 to 6% is considered decent. Above 6% is excellent. Below 3.5%, the investment is of little interest unless you are banking on capital appreciation.

Net Yield: The Economic Reality

Formula

Net yield = ((Annual rent − Annual charges) / (Purchase price + Acquisition costs)) × 100

Net yield incorporates all recurring charges and acquisition costs. It is the most reliable indicator for comparing properties.

Charges to Include

• Property tax (precompte immobilier): varies by municipality (average 1,000 to 2,500 euros/year in Belgium)
• Landlord insurance: approximately 300 to 500 euros/year
• Non-recoverable co-ownership charges: reserve fund, major works (approximately 500 to 1,500 euros/year)
• Maintenance and repairs: budget 1% of property value per year
• Vacancy: budget 1 month of vacancy per year on average (i.e. 8.33% of rent)
• Management fees: if using an agency, expect 6 to 10% of rent

Worked Example

Our Liege apartment at 180,000 euros:

• Acquisition costs (Wallonia): 180,000 × 15% (duties + notary) = 27,000 euros
• Total cost: 180,000 + 27,000 = 207,000 euros
• Annual rent: 10,200 euros
• Annual charges: property tax (1,200) + insurance (400) + co-ownership (800) + maintenance (1,800) + vacancy (850) = 5,050 euros
• Net yield: ((10,200 − 5,050) / 207,000) × 100 = 2.49%

Notice the difference: from 5.67% gross, we drop to 2.49% net. This is why gross yield alone is misleading. Use our rental yield calculator to simulate your project.

Cash-on-Cash Return: Yield on Your Own Money

Formula

Cash-on-cash = (Annual net cash flow / Equity invested) × 100

This indicator measures the return on the money you actually invested (your personal contribution). It is particularly relevant when financing with a mortgage, as leverage can significantly improve your return.

Worked Example

Still our Liege apartment:

• Total price (property + fees): 207,000 euros
• Personal contribution: 50,000 euros (approximately 24%)
• Mortgage: 157,000 euros over 20 years at 3.2% → monthly payment of 890 euros → 10,680 euros/year
• Net rental income (after charges): 5,150 euros/year
• Net cash flow after repayment: 5,150 − 10,680 = −5,530 euros/year

In this example, cash flow is negative: you need to add 461 euros per month from your own pocket. This is common in Belgium for a first investment. However, you are repaying capital every month, and the property value increases over time.

IRR (Internal Rate of Return): The Complete Picture

Formula

The IRR is the discount rate that makes the net present value (NPV) of all cash flows equal to zero. It cannot be calculated by hand but with a spreadsheet (IRR function in Excel or Google Sheets).

What the IRR Integrates

• The initial investment (deposit + fees)
• Annual net cash flows (rent − charges − mortgage repayment)
• Capital gain on resale (sale price − outstanding capital − selling costs)
• Any tax benefits

Simplified 10-Year Example

With our Liege apartment, assuming 2% annual appreciation:

• Initial investment: −50,000 euros
• Annual cash flows: −5,530 euros for 10 years
• Resale after 10 years: estimated value 219,000 euros − outstanding capital 95,000 euros − selling costs 5,000 euros = +119,000 euros
• Estimated IRR: approximately 6.8% per year

The IRR shows that despite negative annual cash flow, the investment is profitable over 10 years thanks to leverage and capital appreciation. It is the most comprehensive measure of investment performance.

Indicator Comparison

• Gross yield (5.67%): useful for quick initial screening, but incomplete
• Net yield (2.49%): better reflects annual reality, essential for comparison
• Cash-on-cash (negative here): shows the impact on your monthly cash flow
• IRR (6.8%): the only indicator integrating duration, leverage, and capital appreciation

Pitfalls to Avoid

• Do not underestimate charges: actual charges are always higher than expected. Budget a safety margin of 10 to 15%.
• Do not forget vacancy: even in tight markets, budget at least 1 month of vacancy per year.
• Do not ignore acquisition costs: in Belgium, they represent 12 to 15% of the purchase price. Notary fees are a major item.
• Do not overestimate appreciation: count on 1.5 to 2.5% per year on average, no more.
• Account for taxation: the indexed cadastral income is taxed at the marginal rate for rented properties. See our guide on rental investment taxation.

What Returns to Aim for in Belgium?

In 2025, here are the observed net yield ranges by region:

• Brussels: 2.5 to 4% net (3 to 5.5% gross)
• Flanders: 2 to 3.5% net (3.5 to 5% gross)
• Wallonia: 3 to 5% net (5 to 7% gross)

The highest yields are found in Walloon cities (Charleroi, Liege, Mons) and in certain Brussels municipalities (Saint-Josse, Molenbeek, Anderlecht). To find the best opportunities, check our data per municipality.