Two Yields, and Only One of Them Is Honest
Rental yield is quoted constantly and defined loosely. Gross yield is annual rent over purchase price, which is easy to advertise and tells you almost nothing. Net yield subtracts the costs of actually owning the thing, and it is invariably lower, often by a third or more.
This calculator produces both, so a listing quoting a headline figure can be checked against what the property would really return.
How to Calculate Rental Yield
Gross yield needs two inputs. Net yield needs you to be honest about the third.
- Enter the purchase price. For a fair comparison, use the total acquisition cost including stamp duty or transfer tax, legal fees and survey.
- Enter the expected monthly rent, which the calculator annualises.
- Read the gross yield, annual rent divided by price. This is the figure most listings quote.
- Enter your annual running costs: management fees, insurance, maintenance, service charges, ground rent and any local property tax.
- Read the net yield. This is the one worth acting on, and it is the number a listing almost never shows.
- Add a vacancy allowance to running costs if the calculator does not have a field for it, a property let 11 months of the year earns 92 per cent of the rent you entered.
What Eats the Gap Between Gross and Net
Letting agent management typically takes 8 to 15 per cent of rent, insurance and maintenance another few per cent, and a leasehold flat can carry service charges and ground rent that dwarf both. Vacancy is the cost people forget entirely: a single void month is more than eight per cent of the annual rent gone, and tenant turnover usually brings some redecoration with it.
Together these routinely turn a 6 per cent gross yield into something closer to 4 per cent net, and that is before financing. A mortgage does not appear in either yield figure, so a property with a respectable net yield can still produce negative monthly cash flow once the loan is serviced.
Gross Against Net on a 300,000 Property
Annual figures at 1,500 a month rent, showing how each cost layer moves the yield.
| Line | Annual amount | Running yield |
|---|---|---|
| Rent at 1,500/month | 18,000 | 6.00% gross |
| Less management at 10% | −1,800 | 5.40% |
| Less insurance | −400 | 5.27% |
| Less maintenance allowance | −1,500 | 4.77% |
| Less service charge and ground rent | −1,800 | 4.17% |
| Less one void month | −1,500 | 3.67% net |
The headline 6 per cent ends at 3.67 per cent once ordinary costs are counted, and nothing in that list is unusual. A listing quoting the gross figure is not lying, but it is describing a different number from the one that reaches your account.
Yield Is Not Total Return
Yield measures income only. Capital growth, which is where a large share of property returns historically comes from, does not appear in it at all, and neither does capital loss. A low-yield property in an appreciating area can outperform a high-yield one elsewhere, which is why yield alone is a poor basis for comparing markets.
This is a calculation tool and not investment or tax advice. Mortgage interest relief, allowable expenses, capital gains treatment and the rules for furnished versus unfurnished lettings vary substantially by country and change over time. Anyone buying to let should model the position with an accountant familiar with the local rules before committing.