Landlord Guides

Landlord Guides

Landlord Guides

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:

  1. Calculate both gross and net rental yields

  2. Consider all purchase and setup costs

  3. Account for ongoing expenses and void periods

  4. Research local tenant demand and capital growth prospects

  5. Assess financing options and mortgage impact

  6. 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. 

Continue Reading

The latest handpicked blog articles

Stay in the loop

Join our email list

Get exclusive insights, actionable advice, and the latest updates delivered 
straight to your inbox.

By continuing you agree to with our Privacy Policy

Stay in the loop

Join our email list

Get exclusive insights, actionable advice, and the latest updates delivered 
straight to your inbox.

By continuing you agree to with our Privacy Policy

Stay in the loop

Join our email list

Get exclusive insights, actionable advice, and the latest updates delivered 
straight to your inbox.

By continuing you agree to with our Privacy Policy