Rental Yield

Rental yield is a measure of how much annual income a rental property generates relative to its value, expressed as a percentage. It is the primary metric landlords and property investors use to compare opportunities, assess whether a rent level is sustainable, and track the ongoing performance of a portfolio. Use the August rental yield calculator to work out your figures quickly.

Gross yield, net yield, and cash-on-cash return

There are three versions of rental yield worth understanding:

Gross rental yield is the simplest: annual rent divided by property value, multiplied by 100. It is a quick filter for comparing properties but ignores all running costs.

Net rental yield deducts annual costs, including management fees, landlord insurance, repairs, safety certificates, void periods, and service charges where applicable, from the annual rent before dividing by property value. It gives a more realistic picture of actual investment performance and is the figure that matters for comparing properties on a like-for-like basis.

Cash-on-cash return measures annual pre-tax cash flow against the cash actually invested, deposit, stamp duty, legal fees, and any refurbishment, rather than against the full property value. It is most useful for mortgaged buy-to-let properties, where leverage affects the real return on the cash tied up.

The rental yield formula

Gross yield: (Annual rent ÷ Property value) × 100

Net yield: ((Annual rent − Annual costs) ÷ Property value) × 100

For example, a property worth £250,000 achieving £1,250 per month has an annual rent of £15,000. Gross yield = £15,000 ÷ £250,000 × 100 = 6.0%. If annual running costs are £3,000, net yield = £12,000 ÷ £250,000 × 100 = 4.8%.

What is a good rental yield in the UK?

Most UK landlords target a gross yield of 5% or above as a baseline, with 7% or higher considered strong. What constitutes a good yield depends significantly on location, property type, and strategy. Properties in Northern cities such as Manchester, Liverpool, and Leeds tend to yield 6–9% gross, while prime London stock often yields 3–5% with the expectation of stronger capital growth. HMOs and properties let by the room can yield 8–12% gross but carry higher management complexity and licensing obligations.

Net yield is the more meaningful benchmark. A 7% gross yield on a leasehold flat with high service charges and frequent voids may produce a weaker net yield than a 5.5% gross on a well-maintained freehold house. Always model realistic costs before comparing properties.

What is yield in property investment?

In property investment, yield is used in the same way as in other asset classes, it measures the income return on an investment as a percentage of its value. Unlike equities or bonds, property yield does not account for capital appreciation, which can be a significant component of total return in certain markets and time periods. A complete investment assessment considers yield, capital growth potential, and the risk-adjusted return after costs, tax, and financing.

For buy-to-let landlords, Section 24 has affected the net return on mortgaged properties by restricting mortgage interest relief to a basic-rate credit. This means the cash return after tax is lower than the yield figure suggests for higher-rate taxpayers. The August rental income tax calculator models this correctly.

Rental yield and the Renters' Rights Act

The Renters' Rights Act restricts rent increases to once per year in most private tenancies and requires landlords to use formal notice procedures via a Section 13 notice for any increase. It also bans rental bidding and caps rent in advance at one month. Landlords setting target yield figures need to build these constraints into their projections rather than assuming uncapped rent growth. Use the rent increase calculator to model the impact of a proposed increase on your annual rent and yield figures.

See our landlord blog articles including:

Also see our free landlord calculators:

Also see: Rental property · Buy-to-let · Rental income · Rental profit · Void periods · HMO · Landlord insurance · Repairs· Section 24 · Section 13 · Tenant