What is rental yield? A landlord's guide
July 2, 2025
When evaluating a buy-to-let investment, it’s easy to be drawn to aesthetic features – a newly renovated kitchen, a well-kept garden, or period charm. But successful property investors know that strong returns aren’t about visual appeal. They’re about the numbers.
One of the most important metrics to assess the performance of a rental property is rental yield. Whether you're a first-time landlord or looking to expand your portfolio, understanding how to calculate and interpret rental yield is essential.
In this guide, we’ll explain what rental yield is, how to calculate it, and how to use it to compare buy-to-let investments across the UK.
What is rental yield?
Rental yield is the percentage return you earn from renting out a property, based on the income it generates relative to its cost. It’s one of the most widely used benchmarks for evaluating property investments.
Rental Yield (%) = (Annual Rental Income ÷ Total Investment) × 100
A higher rental yield generally means a better return on investment. However, yield isn’t the only consideration – location, capital appreciation, tenant demand, and operating costs also matter.
Gross vs net rental yield
There are two types of rental yield to be aware of:
Gross Yield is calculated using the annual rental income divided by the purchase price (or total investment).
Net Yield considers ongoing costs such as maintenance, property management, insurance, and void periods. It gives a more realistic picture of what the landlord actually earns.
For serious investors, net yield is the more useful figure – but both are important when screening potential opportunities.
Comparing two properties
To illustrate how yield calculations work, let’s compare two typical UK buy-to-let properties.
Property A
Purchase price: £200,000
Estimated additional costs: £10,000 (stamp duty, legal fees, furniture)
Total investment: £210,000
Monthly rent: £800
Annual rental income: £9,600
Gross yield: (9,600 ÷ 210,000) × 100 = 4.57%
Property B
Purchase price: £250,000
Estimated additional costs: £12,500
Total investment: £262,500
Monthly rent: £1,100
Annual rental income: £13,200
Gross yield: (13,200 ÷ 262,500) × 100 = 5.03%
Despite a higher purchase price, Property B offers a stronger return based on gross yield alone. But this is only part of the story.
Factoring in costs
To understand your actual earnings, you must deduct running costs from your rental income. Typical expenses include:
Repairs and maintenance
Letting or property management fees
Insurance (including landlord cover)
Council tax during void periods
Safety certificates (EPC, gas, electrical)
Let’s assume Property A incurs £2,400 in annual costs, and Property B incurs £3,200.
Property A net income: £7,200 = net yield: 3.43%
Property B net income: £10,000 = net yield: 3.81%
Here, Property B still delivers a better return, but only slightly. This highlights the importance of comparing net yields, not just gross yields, when assessing investment viability.
What is a good rental yield in the UK
Rental yields vary significantly across the UK. As a rule of thumb:
London and South East: 3–5% gross yield
Northern cities (e.g. Manchester, Liverpool, Leeds): 5–7%
Student or high-demand rental areas: 7%+ (with higher risk/management)
The right yield for you depends on your strategy. Lower yields in prime areas may be offset by strong capital growth. Higher yields may require more active management or carry more risk.
Capital appreciation
While rental yield gives you a clear picture of short-term income, capital appreciation, the increase in a property’s value over time is another critical component of total return.
If you purchase in an area with planned infrastructure improvements, strong local employment, or regeneration initiatives, the property’s value may rise significantly over 5–10 years. This long-term growth can outperform yield-focused strategies, particularly for investors with a long time horizon.
However, capital growth is never guaranteed. That’s why many landlords seek a balance between rental income and growth potential.
The impact of mortgages on returns
If you’re financing your investment with a buy-to-let mortgage, yield takes on another dimension. Many investors look at cash-on-cash return, the return on the actual cash they put in (e.g. deposit + setup costs), rather than the full property price.
For example, if you put down a 25% deposit on Property B (£62,500) and rent comfortably covers your mortgage and expenses, your cash-on-cash return could be 10% or more, significantly higher than the headline yield suggests.
This is one reason why understanding both yield and financing is critical when assessing investments.
Making data-led decisions
Successful property investment isn’t about following your instincts or falling in love with a property. It’s about understanding the numbers – and letting those numbers guide your decisions.
Before purchasing your next buy-to-let, always:
Calculate both gross and net rental yields
Consider all purchase and setup costs
Account for ongoing expenses and void periods
Research local tenant demand and capital growth prospects
Assess financing options and mortgage impact
Use tools like the August investment calculator to make side-by-side comparisons
The more informed you are, the more resilient and profitable your property portfolio will be.
See you next week on the 9th July at the National Landlord Investment Show, where Sam Cope the Founder of August will be speaking on the "Proptech and AI: The Future of Property Investing" panel at 11.45 - 12.45 and August will be exhibiting.
Need help managing your Buy-to-Let?
August is the all-in-one app built for small landlords. From calculating yields to managing tenants and maintenance requests, we help you stay compliant, stay organised, and maximise returns.
Disclaimer: This article is a guide and not intended to be relied upon as legal or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Always speak to a suitably qualified professional if you require specific advice or information.
