How rental yield is calculated
Gross yield is the annual rent divided by the property's purchase price (or current value), shown as a percentage. It's the quickest way to compare properties, but it ignores costs.
Net yield takes your annual running costs off the rent first, so it gives a truer picture of what the property returns. Typical costs include letting or management fees, landlord insurance, repairs and maintenance, service charges and ground rent, and safety certificates such as gas safety and EICR.
Example
A flat bought for £200,000 and let at £1,000 a month earns £12,000 a year — a gross yield of 6%. With £2,400 of yearly costs, the net yield is (£12,000 − £2,400) ÷ £200,000 = 4.8%.
What yield doesn't tell you
- Mortgage costs and how interest is taxed — see the landlord tax calculator.
- Purchase costs such as Stamp Duty, legal fees and surveys.
- Void periods between tenancies and capital growth.
Frequently asked questions
What is gross rental yield?
Gross rental yield is the yearly rent divided by the property price, multiplied by 100. For example, £12,000 a year on a £200,000 property is a 6% gross yield.
What is the difference between gross and net yield?
Gross yield uses the rent alone. Net yield subtracts annual running costs such as fees, insurance, repairs and certificates before dividing by the property price, so it is always lower and more realistic.
Should I include my mortgage in net yield?
Yield is usually worked out without mortgage payments so properties can be compared on the same basis. Look at cash flow and tax separately to understand the effect of borrowing.