if you pay €300,000 for a house and it generates an annual rental of €12,000 then the 12k is 4% of the 300k, thats a 4 % rental yield, I would say to you the rental yield is worked out on the purchase price as if you based it on market value rental yield would only be a notional figure with no real meaning. For example if you bought a property twenty years ago and worked the rental yield out on todays market value the figure to you is useless. In that case you might work it out on whatever mortgage is left on the property, as thats in effect is the price you have to pay to own the property outright today today. When talking to an investor you work out what their rental yield is from what they have to pay from the house.