Rental Yield Explained: Gross, Net and Why Both Matter
Yield is the quickest way to compare rental properties. The useful version is the one that counts the costs.
What to know
- Gross yield is annual rent divided by the property price, before any costs.
- Net yield takes off running costs such as letting fees, repairs, insurance and empty periods.
- Mortgage interest isn’t part of net yield, but it decides your cash flow.
- Test your figures against higher rates, longer voids and bigger repairs.
Rental yield measures the income a property produces relative to its price. It’s useful for comparing properties quickly, as long as you know what each version includes.
Gross yield
Gross yield = annual rent ÷ property price × 100.
A property bought for £200,000 and let for £1,000 a month brings in £12,000 a year, a gross yield of 6%. It’s simple, but it ignores every cost of being a landlord.
Net yield
Net yield = (annual rent − running costs) ÷ property price × 100.
| Running cost (example) | Annual amount |
|---|---|
| Letting and management fees (12% of rent) | £1,440 |
| Repairs and maintenance | £600 |
| Landlord insurance | £350 |
| One month empty | £1,000 |
| Safety certificates and compliance | £300 |
| Total | £3,690 |
Rent of £12,000 minus £3,690 leaves £8,310, a net yield of about 4.2%, well below the 6% gross figure. Leasehold flats may also have service charges and ground rent.
From yield to cash flow
Net yield leaves out mortgage costs because they depend on how you finance the purchase. Cash flow doesn’t. If the property above has a £150,000 interest-only mortgage at 5%, interest is £7,500 a year, leaving £810 before tax. Our guide to mortgage interest and tax explains why tax can take a large share of that.
Handy tip
Work out the return on the cash you’ve put in as well: annual cash flow divided by your deposit, stamp duty, fees and refurbishment costs. It shows what your own money is earning.
Stress-testing the numbers
- What happens if the interest rate rises by two percentage points?
- What if the property is empty for three months?
- What if a boiler or roof needs replacing?
If a small change turns the cash flow negative, the property may be riskier than the yield suggests. Lenders run their own rental cover test, but it’s no substitute for your own.
Good to know
Don’t forget upfront costs, including Stamp Duty Land Tax at the higher rates for additional properties. They don’t appear in yield but affect your overall return.
Using yield sensibly
Use gross yield to shortlist, net yield to compare and cash flow to decide. Consider capital growth, demand from tenants and the condition of the property alongside the numbers, and keep a buffer for the months when costs come in higher than expected.
Your questions
What is a good rental yield?
There’s no single figure. Yields vary by area and property type, and higher-yield areas can come with higher costs or weaker price growth.
Should I use the purchase price or the current value?
Use the purchase price, including buying costs, when assessing a new purchase. For a property you already own, current value shows what your money is earning now.
Are safety checks a running cost?
Yes. In England, landlords need an annual gas safety check where there are gas appliances and an electrical safety inspection at least every five years.
This guide explains how UK borrowing works in general terms and isn’t financial advice. Rates, rules and lender criteria change, so check the details with the lender, GOV.UK or the Financial Conduct Authority before you decide. For advice on your own circumstances, speak to an FCA-authorised mortgage or financial adviser. If you borrow against your home, it may be repossessed if you do not keep up repayments.
