How to Calculate Rental Yield (With Worked Examples)

Gross yield is the number every listing quotes. Net yield is the number that actually pays your bills. The gap between them is where most first-time landlords get caught out — and it is usually two to three percentage points wide.

This guide shows you how to calculate both, using one real property from start to finish. No jargon, and every number is worked through so you can follow it with your own figures.

What is rental yield?

Rental yield is the annual rent a property produces, expressed as a percentage of what the property cost. It exists so you can compare properties of different prices on a level footing — a 1,400-a-month flat and a 700-a-month terrace are impossible to compare directly until you turn both into a percentage.

There are two versions, and confusing them is the single most expensive mistake in buy-to-let.

How to calculate gross rental yield

Gross yield is the simple one. It ignores every cost you will ever pay.

Gross yield = (Monthly rent × 12) ÷ Purchase price × 100

Worked example

Take a property bought for 180,000 that rents for 1,400 a month:

• Annual rent = 1,400 × 12 = 16,800
• Gross yield = 16,800 ÷ 180,000 = 0.0933
• Gross yield = 9.3%

Against a savings account, 9.3% looks outstanding. This is the figure that appears in listings, in agent brochures, and in the spreadsheet of every optimistic first-time investor. It is also close to meaningless on its own, because you have not paid a single bill yet.

How to calculate net rental yield

Net yield subtracts the cost of actually running the property. It is the honest number.

Net yield = (Annual rent after voids − Annual operating costs) ÷ Purchase price × 100

Two things change compared with the gross calculation. First, you reduce the rent to allow for months the property sits empty. Second, you subtract what it costs to keep the property running.

Step 1 — allow for voids

No property is occupied 100% of the time. Tenants leave, and re-letting takes a few weeks. A 5% void allowance is a common starting point — roughly two and a half weeks a year.

• 16,800 × (1 − 0.05) = 15,960

Step 2 — add up the operating costs

These are the recurring costs of running the property. For our example:

• Landlord insurance: 420
• Other annual costs (safety certificates, licensing, sundries): 360
• Management fee at 10% of rent received: 15,960 × 0.10 = 1,596
• Maintenance allowance at 8%: 15,960 × 0.08 = 1,277
• Total operating costs = 3,653

Note what is not in that list: the mortgage. Yield measures the performance of the property, not the performance of your financing. We come back to the mortgage in a moment.

Step 3 — calculate net yield

• 15,960 − 3,653 = 12,307
• 12,307 ÷ 180,000 = 0.0684
• Net yield = 6.8%

The same property that looked like 9.3% is really 6.8%. That 2.5-point gap is not a rounding error — it is roughly 4,500 a year.

Yield is not cash flow

Here is the part that catches people out. Net yield still ignores your mortgage, so a healthy yield can sit on top of negative cash flow.

Continue the example with a 135,000 repayment mortgage at 5.5% over 25 years. The monthly payment is 829.02, or 9,948 a year.

• Rent after voids: 15,960
• Less operating costs: −3,653
• Less mortgage: −9,948
• Annual cash flow = 2,359, or 196.58 a month

That is a genuinely decent property. But nudge the interest rate to 7% and the mortgage rises to roughly 11,450 a year, which drops cash flow to about 857 a year — under 75 a month. One boiler replacement wipes out the entire year. The yield barely moved; the cash flow nearly vanished.

Yield tells you whether the property is good. Cash flow tells you whether you can afford to own it. You need both.

What is a good rental yield?

It depends on where you buy, but as a rough guide:

• Below 4% gross — you are betting almost entirely on capital growth. Common in expensive southern cities.
• 5% to 7% gross — typical for a balanced buy-to-let in most regional markets.
• 8%+ gross — usually northern cities, HMOs, or properties that need work. Higher yields often carry higher management effort and higher void risk.

Treat any of these as a starting point rather than a target. A 10% gross yield in an area with three-month void periods can easily underperform a 6% yield with a five-year tenant.

Four mistakes to avoid

1. Using asking rent instead of achieved rent

Check what comparable properties actually let for, not what they are advertised at. The difference is often 5%.

2. Forgetting purchase costs

Legal fees, surveys and stamp duty are real money. They do not change the yield calculation, but they absolutely change your return on the cash you invested.

3. Assuming zero voids

A 100% occupancy assumption will flatter every property you look at. Build in at least 5%.

4. Treating capital improvements as running costs

A new bathroom is not a repair. It generally adjusts your cost base when you sell rather than reducing this year's rental profit — and mixing the two distorts both your yield and your tax position.

Do this calculation in thirty seconds instead

Everything above is arithmetic, which means it should not be your job. We built a free Rental Yield & Cash Flow Calculator — a single spreadsheet tab where you enter the purchase price, deposit, rate, rent and costs, and read gross yield, net yield, monthly cash flow, cash-on-cash return and break-even rent immediately.

It works in Excel and in Google Sheets, it is free, and it is the same engine that powers our full tracker.

If you own more than one property, the Rental Property Tracker does this across an entire portfolio — twenty properties, month-by-month rent and arrears, a categorised expense log, and a tax summary that separates mortgage interest ready for your accountant.

Frequently asked questions

Should I use purchase price or current market value?

Purchase price tells you how well the original decision performed. Current value tells you whether your capital is still working hard where it is. Both are useful; just be consistent and state which one you are using.

Does rental yield include the mortgage?

No. Yield measures the property. Once you bring the mortgage in, you are measuring cash flow or cash-on-cash return instead.

What is cash-on-cash return?

Annual cash flow divided by the cash you actually put in — deposit plus purchase costs. In our example that is 2,359 ÷ 52,500 = 4.5%. It is the truest measure of what your money is earning.

How often should I recalculate?

Once a year at minimum, and immediately whenever your mortgage rate changes or rent is reviewed. A fixed-rate expiry can turn a good property into a loss-making one overnight.

This article is general information for landlords, not financial or tax advice. Figures are illustrative. Confirm your own position with a qualified accountant or adviser.