Yield, cash flow, IRR and DSCR are complementary property metrics. Each answers a different question, so one attractive number should never decide an investment alone.

Yield

Gross yield = annual gross rent ÷ purchase price. It is useful for screening but ignores vacancy, acquisition costs, owner-paid expenses and financing. Net yield = net operating income ÷ total acquisition cost. State clearly which costs are included.

Cash flow

Cash flow = rental income − operating costs − financing payments. Clarify whether reserves, capital expenditure and tax are included. Positive cash flow does not automatically mean a good investment.

IRR

Internal rate of return combines periodic cash flows with an assumed future sale. It is sensitive to exit value, sale costs, taxes and timing. A high IRR based on an optimistic sale price can be less useful than a lower robust scenario.

DSCR

DSCR = net operating income ÷ debt service. If NOI is CHF 30,000 and annual debt service is CHF 25,000, DSCR is 1.2. This means stated income covers stated debt service; it does not guarantee lender approval. Definitions vary.

One worked example

Assume annual rent of CHF 36,000, vacancy of CHF 2,000 and operating costs of CHF 10,000. NOI is CHF 24,000. With annual debt service of CHF 20,000, DSCR is 1.2 and cash flow before tax is CHF 4,000. A CHF 3,000 repair reduces cash flow to CHF 1,000.

If the purchase price is CHF 600,000 and acquisition costs are CHF 30,000, gross yield is CHF 36,000 ÷ CHF 600,000 = 6.0%. Net yield is CHF 24,000 ÷ CHF 630,000 ≈ 3.8%. The different results show why headline yield can be misleading.

Common errors

  • Using advertised rent without evidence.
  • Ignoring vacancy and collection risk.
  • Excluding acquisition costs from the denominator.
  • Mixing pre-tax and post-tax figures.
  • Using an untested exit value.

Use scenarios

Apply one consistent assumption set, then test lower rent, more vacancy, major repairs and higher rates. Valory Deals helps compare acquisition and financing scenarios before buying; Valory Properties helps compare projections with actual ownership data afterwards.

This content is provided for general informational purposes and does not constitute legal, tax, financial or investment advice. Definitions, financing terms, tax treatment and outcomes may vary by property, jurisdiction and individual situation.