Property agents in Malaysia will quote you a yield. It will be a gross number — 5%, 6%, maybe 7% if they are feeling optimistic. That number is calculated by dividing annual rent by purchase price and stopping there. It ignores maintenance fees, vacancy, taxes, agent commissions, furnishing depreciation, and every other cost that sits between the rent your tenant pays and the cash that actually reaches your bank account.
Gross yield is a screening metric, not a decision metric. If you buy based on gross yield alone, you will overpay for properties that bleed money every month. This guide covers the three yield formulas every Malaysian property investor needs — gross yield, net yield, and Rent Coverage Ratio — with worked examples at real market numbers.
Formula 1: Gross Rental Yield
The simplest calculation. Useful for initial screening. Useless for investment decisions on its own.
Gross Rental Yield = (Monthly Rent x 12) / Purchase Price x 100
This tells you the rental income as a percentage of the property price before any costs are deducted. It is the "top line" number — equivalent to revenue before expenses in a business.
Example: RM 500,000 condo renting at RM 2,500/month
(RM 2,500 x 12) / RM 500,000 x 100 = 6.0%
Gross yield is useful for one thing: quickly filtering out properties that have no chance of being cashflow-positive. In the current rate environment (OPR at 2.75%, February 2026), any property with a gross yield below 5.0% is almost certainly cashflow-negative. Above 5.5%, it is worth deeper analysis. Above 6.5%, it warrants serious attention.
But the gap between gross yield and reality can be enormous. A 6.0% gross yield property routinely delivers 2.0-3.5% net yield after all costs — barely above a fixed deposit rate.
Formula 2: Net Rental Yield
Net yield strips out the recurring costs of ownership. This is the number that tells you what return the property actually generates on your capital before financing.
Net Rental Yield = ((Annual Rent - Annual Costs) / Purchase Price) x 100
The critical question: what counts as "annual costs"? Here is the full list:
| Cost Item | Typical Annual Amount (RM) | As % of RM 500K Property |
|---|---|---|
| Maintenance + sinking fund | RM 3,600 - 6,600 | 0.72% - 1.32% |
| Vacancy allowance (1 month/year) | RM 2,500 | 0.50% |
| Agent letting fee (amortized) | RM 1,250 | 0.25% |
| Assessment tax (cukai taksiran) | RM 600 - 1,500 | 0.12% - 0.30% |
| Quit rent (cukai tanah) | RM 50 - 200 | 0.01% - 0.04% |
| Fire insurance / takaful | RM 300 - 600 | 0.06% - 0.12% |
| Rental income tax (estimated) | RM 1,000 - 4,000 | 0.20% - 0.80% |
| Furnishing depreciation | RM 1,500 - 3,000 | 0.30% - 0.60% |
| Total annual costs | RM 10,800 - 19,650 | 2.16% - 3.93% |
This means gross yield is overstating your actual return by 2.0-4.0 percentage points. A property advertised at 6.0% gross yield is delivering 2.0-4.0% net yield. At 5.0% gross, you are likely at 1.0-3.0% net — barely worth the effort and risk.
The average deduction between gross and net yield in the Malaysian condo market is approximately 2.5-3.0 percentage points. Any investment analysis that stops at gross yield is ignoring 40-50% of the cost structure.
Worked Example 1: RM 500K Condo in KL
Property: 900 sqft condo in Setapak, KL. Fully furnished.
| Input | Value |
|---|---|
| Purchase price | RM 500,000 |
| Monthly rent | RM 2,500 |
| Maintenance (RM 0.30/sqft) | RM 270/month |
| Sinking fund (10% of maintenance) | RM 27/month |
| Assessment tax | RM 800/year |
| Quit rent | RM 100/year |
| Insurance | RM 450/year |
| Furnishing cost | RM 18,000 (depreciated over 10 years) |
Gross yield:
(RM 2,500 x 12) / RM 500,000 x 100 = 6.0%
Net yield calculation:
| Item | Annual (RM) |
|---|---|
| Gross rental income | 30,000 |
| Less: Maintenance + sinking fund | -3,564 |
| Less: Vacancy (1 month) | -2,500 |
| Less: Agent fee (1 month / 2 years) | -1,250 |
| Less: Assessment tax | -800 |
| Less: Quit rent | -100 |
| Less: Insurance | -450 |
| Less: Furnishing depreciation | -1,800 |
| Less: Rental income tax (est. 15% marginal on net rental) | -2,930 |
| Net rental income | 16,606 |
Net Yield = RM 16,606 / RM 500,000 x 100 = 3.32%
The gross-to-net gap here is 2.68 percentage points. That 6.0% headline has become 3.32% in reality — before financing costs.
Under conventional financing (4.35%, 90% LTV, 35 years):
- Monthly installment: RM 2,045
- Annual financing cost: RM 24,540
- Net income after financing: RM 16,606 - RM 24,540 = -RM 7,934/year (-RM 661/month)
Under Islamic financing (4.0%, 90% LTV, 35 years):
- Monthly installment: RM 1,992
- Annual financing cost: RM 23,904
- Net income after financing: RM 16,606 - RM 23,904 = -RM 7,298/year (-RM 608/month)
Islamic financing saves RM 53/month here, but both scenarios are cashflow-negative. The property needs a gross yield closer to 7.0% — rent of approximately RM 2,900/month — to break even under Islamic financing.
Worked Example 2: RM 300K Apartment in JB
Property: 850 sqft apartment in Johor Bahru, near CIQ. Basic furnishing.
| Input | Value |
|---|---|
| Purchase price | RM 300,000 |
| Monthly rent | RM 1,800 |
| Maintenance (RM 0.22/sqft) | RM 187/month |
| Sinking fund | RM 19/month |
| Assessment tax | RM 500/year |
| Quit rent | RM 60/year |
| Insurance | RM 350/year |
| Furnishing cost | RM 10,000 (depreciated over 8 years) |
Gross yield:
(RM 1,800 x 12) / RM 300,000 x 100 = 7.2%
Net yield calculation:
| Item | Annual (RM) |
|---|---|
| Gross rental income | 21,600 |
| Less: Maintenance + sinking fund | -2,472 |
| Less: Vacancy (1 month) | -1,800 |
| Less: Agent fee (amortized) | -900 |
| Less: Assessment tax | -500 |
| Less: Quit rent | -60 |
| Less: Insurance | -350 |
| Less: Furnishing depreciation | -1,250 |
| Less: Rental income tax (est. 11% marginal) | -1,569 |
| Net rental income | 12,699 |
Net Yield = RM 12,699 / RM 300,000 x 100 = 4.23%
Under Islamic financing (4.0%, 90% LTV, 35 years):
- Monthly installment: RM 1,195
- Annual financing cost: RM 14,340
- Net income after financing: RM 12,699 - RM 14,340 = -RM 1,641/year (-RM 137/month)
Under conventional financing (4.35%, 90% LTV, 35 years):
- Monthly installment: RM 1,227
- Annual financing cost: RM 14,724
- Net income after financing: RM 12,699 - RM 14,724 = -RM 2,025/year (-RM 169/month)
At 7.2% gross yield, this property is borderline — losing only RM 137/month under Islamic financing. A rent increase to RM 1,950/month (8.3% premium) tips it into positive territory. This is a far more investable proposition than the KL condo at 6.0% gross yield.
Formula 3: Rent Coverage Ratio (RCR)
RCR is the most practical metric for financed property. It answers the single most important question: does the rent cover the mortgage?
Rent Coverage Ratio = Monthly Rent / Monthly Loan Installment
No percentages, no annualization. Just a ratio.
| RCR Value | Interpretation |
|---|---|
| Below 1.0 | Rent does not cover financing. You subsidize the tenant every month. |
| 1.0 - 1.2 | Rent covers financing but not operating costs. Still cashflow-negative. |
| 1.2 - 1.3 | Covers financing and some operating costs. Borderline. |
| 1.3 - 1.4 | Covers financing and most operating costs. Likely cashflow-positive. |
| Above 1.4 | Genuinely cashflow-positive with a buffer for unexpected costs. |
RCR for Example 1 (RM 500K KL condo):
- Islamic: RM 2,500 / RM 1,992 = 1.26 (borderline)
- Conventional: RM 2,500 / RM 2,045 = 1.22 (cashflow-negative after operating costs)
RCR for Example 2 (RM 300K JB apartment):
- Islamic: RM 1,800 / RM 1,195 = 1.51 (strong rent-to-mortgage ratio)
- Conventional: RM 1,800 / RM 1,227 = 1.47 (solid rent-to-mortgage ratio)
Important nuance: RCR only measures rent versus the mortgage installment — it does not account for operating expenses (maintenance, vacancy, tax, insurance, furnishing). The JB apartment's RCR of 1.51 means rent comfortably exceeds the mortgage payment, but the full modeled net cashflow is still -RM 137/month under Islamic financing (as shown in Example 2 above) after all operating costs. A property can have RCR above 1.0 and still be cashflow-negative once the full cost stack is included. RCR tells you whether rent covers financing; net yield tells you whether rent covers everything.
The KL condo's 1.26 is in the danger zone — positive on paper until operating costs are factored in.
Target an RCR above 1.3 for Islamic financing or above 1.4 for conventional. Below these thresholds, operating costs will likely push you into negative cashflow territory. The higher the RCR, the wider your margin of safety against vacancy, rate increases, and unexpected repairs.
Why Gross Yield Misleads
The gap between gross yield and actual cashflow arises from three categories of costs that gross yield ignores:
1. Fixed operating costs (maintenance, tax, insurance): These are unavoidable regardless of whether the property is tenanted. They consume 1.0-2.0% of property value annually.
2. Variable costs (vacancy, agent fees, repairs): These depend on tenant turnover and property condition. They consume 0.5-1.5% annually for a well-managed property, more for a poorly managed one.
3. Tax on rental income: Malaysian tax residents pay progressive rates on net rental income. Non-residents pay 30% flat on net rental income (after allowable deductions) — a massive drag that can consume 1.5-2.5% of property value annually.
The combined effect: a property needs roughly 2.5-3.5% more gross yield than its financing cost to break even. At current Islamic financing rates of ~4.0%, that means break-even gross yield is approximately 6.5-7.5%. At conventional rates of ~4.35%, it is 7.0-8.0%.
This is why most Malaysian condos in the RM 400,000-700,000 range — which typically yield 4.5-5.5% gross — are cashflow-negative. The math does not work at those yield levels under current financing costs.
Benchmark Yields by Area
Gross rental yields vary significantly across Malaysian cities. These ranges reflect typical achieved yields for condominiums and apartments as of early 2026:
| Area | Gross Yield Range | Notes |
|---|---|---|
| Kuala Lumpur (city center) | 4.0% - 5.5% | High prices compress yields; strong demand |
| KL (suburban — Setapak, Cheras, Kepong) | 5.0% - 6.5% | Better yields from lower entry prices |
| Selangor (Petaling Jaya, Subang) | 4.5% - 6.0% | Established areas, stable demand |
| Selangor (Shah Alam, Klang) | 5.0% - 6.5% | Lower prices, growing rental markets |
| Penang (George Town) | 3.5% - 5.0% | High prices, tourism-driven demand |
| Penang (mainland — Butterworth, Seberang Perai) | 5.0% - 6.5% | Lower prices, industrial tenant base |
| Johor Bahru | 5.0% - 7.0% | Singapore spillover demand, wide variance |
| Ipoh | 5.0% - 7.0% | Low entry prices, growing expat interest |
| Kota Kinabalu | 4.0% - 6.0% | Limited supply, oil & gas sector demand |
The highest gross yields cluster in secondary cities (JB, Ipoh) and suburban KL/Selangor, where purchase prices are low relative to rental rates. Prime KL and Penang George Town show the lowest yields because capital appreciation expectations — not rental return — drive pricing.
For cashflow investors, the sweet spot is suburban KL, Selangor secondary areas, and JB — where gross yields above 6.0% are achievable and rental demand is supported by employment centers, transit, and population density.
What Yield Makes a Property Cashflow-Positive?
Combining all three metrics, here are the general thresholds for positive monthly cashflow under current market conditions (February 2026):
| Financing Type | Minimum Gross Yield | Minimum RCR | Approximate Net Yield |
|---|---|---|---|
| Islamic (4.0%) | ~5.5% | ~1.3 | ~2.5% |
| Conventional (4.35%) | ~6.0% | ~1.4 | ~2.8% |
These are minimums for break-even. For a meaningful cashflow buffer (RM 200-400/month positive), add 0.5-1.0% to the gross yield threshold.
The relationship between gross yield and cashflow is not linear — it depends heavily on the maintenance fee structure, your tax bracket, and whether you use Islamic or conventional financing. Two properties with identical 6.0% gross yield can produce different cashflow outcomes based on these variables.
This is why we recommend using all three metrics together:
- Gross yield for initial screening (reject below 5.0%)
- Net yield for comparing properties on an apples-to-apples basis
- RCR for the final go/no-go decision on a specific property with specific financing terms
For a deeper analysis of how gross yield breaks down into net cashflow, see our detailed comparison of gross yield versus net cashflow.
Run Your Own Numbers
Every property has a different cost structure. Maintenance fees, tax brackets, and financing terms all shift the break-even point. Rather than using the general thresholds above, model your specific property with actual numbers.
Our cashflow calculator takes your purchase price, rent, maintenance fees, and financing terms, then outputs gross yield, net yield, RCR, and monthly cashflow under both Islamic and conventional financing. It takes 30 seconds and gives you the three numbers that actually matter.