Understanding your property's yield is fundamental to assessing its investment performance. Here's how to calculate both gross and net yield accurately.
Rental yield is the fundamental measure of a buy-to-let property's income performance. Understanding how to calculate both gross and net yield — and what the numbers mean — is essential for any landlord assessing their portfolio's performance or considering a new purchase.
What is gross yield?
Gross yield is the simplest calculation: annual rental income divided by the property's value, expressed as a percentage.
Gross yield = (Annual rent / Property value) × 100
For example: a property worth £200,000 achieving £950 per month in rent has a gross yield of (£11,400 / £200,000) × 100 = 5.7%.
Gross yield is useful for quick comparisons between properties but doesn't account for costs.
What is net yield?
Net yield adjusts for costs, giving a more accurate picture of actual return. The formula is:
Net yield = ((Annual rent - Annual costs) / Property value) × 100
Annual costs to include: management fees, insurance, average maintenance, letting fees (amortised), safety certificates, ground rent and service charges (if applicable), and an allowance for void periods (typically 2-4 weeks per year).
For our example property, if annual costs total £2,500: ((£11,400 - £2,500) / £200,000) × 100 = 4.45% net yield.
Yield vs. return on investment
If you've used a mortgage to purchase, your actual cash-on-cash return (return on the cash you've invested) may be higher or lower than the yield, depending on the relationship between rental income, mortgage costs and your deposit amount.
What is a good yield?
"Good" is relative to your location and goals, but as a general guide: below 4% is low; 4-6% is typical for London and South East; 6-8% is strong; above 8% is high yield (usually in lower-value northern markets).
Our properties across Essex, Surrey and south-east London regularly achieve 4.5-7% gross yields. Contact us to discuss specific properties and what returns might be achievable.