Rental yield is the rent a property earns in a year expressed as a share of what the property cost. It is the first number a landlord works out about any property and the one most often worked out badly, because the gross figure flatters and the net figure needs costs the landlord has not yet gathered. This page is for the UK buy-to-let landlord working the yield on a property they own or are weighing, and it sets out the gross and the net calculation step by step, the figures to gather first, and the mistakes that make a poor property look like a good one. The rental yield calculator on this site does the arithmetic from your figures, free and on the page.
Gross yield: how do you work out rental yield quickly?
Take the annual rent, meaning the monthly rent multiplied by twelve, and divide it by the property's value or purchase price, then express the result as a percentage. That is gross yield. It ignores every cost and every empty month, which is why it is quick and why it flatters. Use it to compare properties on the same footing and for nothing else.
Net yield: how to work out a rental yield that pays the mortgage
Start with the annual rent and subtract the costs of holding and letting the property for a year: the letting agent's fee if you use one, insurance, ground rent and service charge on a leasehold, repairs and maintenance, gas and electrical safety certificates, and an allowance for void weeks between tenancies. Divide what is left by the purchase price plus the costs of buying: stamp duty, legal fees, survey, any refurbishment before the first let. Express it as a percentage. The net figure is usually well below the gross, and it is the one that tells you whether the property carries itself.
Where mortgage interest goes
Yield is normally worked before finance, so that two landlords with different mortgages can compare the same property. Work the net yield without the mortgage, then look at the interest separately against the rental profit; the rental income tax calculator on this site handles the finance-cost restriction that applies to residential lettings. If you want the return on your own cash rather than on the property, that is a different figure, the return on the deposit, and it belongs on the return page rather than here.
The figures a rental yield calculation needs before you start
Twelve months of rent at the rent actually achievable, not the asking rent. The agent's fee as a percentage of rent including VAT. The insurance premium. The service charge and ground rent from the lease. A realistic repairs allowance, which for an older property is more than for a new build. The number of void weeks you expect between tenancies. The purchase price and every cost of buying. With those in hand the calculation takes a minute; without them it is a guess dressed as arithmetic.
The mistakes that flatter when working out rental yield
Using the asking rent rather than the achieved rent. Forgetting the void weeks. Leaving out the service charge on a flat. Dividing by the mortgage deposit rather than the full price and calling the result a yield. Comparing a gross yield on one property with a net yield on another. Each of these makes a property look better than it is, and each is avoided by working the net figure with the same inputs every time, which is what the calculator on this site is for.
Questions people ask about how to calculate rental yield
What is the rental yield formula in one line?
Annual rent divided by property value, as a percentage, for gross; annual rent minus annual costs, divided by purchase price plus buying costs, as a percentage, for net.
How to calculate rental yield uk landlords can compare across properties?
Use the same formula and the same cost assumptions for each, work net rather than gross, and use achieved rent. The calculator here keeps the inputs identical between properties.
Should I include the mortgage when calculating rental yield?
Not in the yield itself. Work yield before finance so properties compare fairly, then look at the interest against the rental profit separately with the tax calculator.
How is rental yield calculated for a flat with a service charge?
Exactly as for a house, with the service charge and ground rent subtracted as annual costs in the net figure. Leaving them out is the commonest flat-specific error.