There is no single good yield, and anyone who gives you one number is describing their own portfolio. A good yield is one that, after the property's real costs, leaves a rental profit that covers the finance, pays the tax and still rewards the landlord for the work and the risk, and that comparison is different for a freehold house in one town and a leasehold flat in another. This page is for the UK buy-to-let landlord asking what a good yield is for a rental property they own or are weighing, and it sets out how to judge the figure rather than what figure to expect. The rental yield calculator and the rental income tax calculator on this site produce the two numbers the judgement needs.
Judge the net, never the gross
A gross yield that looks generous can hide a service charge, an agent's fee and a void pattern that leave very little. Work the net yield with the property's real costs first. A good yield is a good net yield; the gross is a screening number for a shortlist and nothing more.
Against the finance it carries
If the property is mortgaged, the rental profit has to cover the interest with room to spare for a rate rise. Relief for finance costs on residential lettings is restricted to the basic rate of Income Tax, given as a reduction from the tax bill rather than a deduction from profit, so a higher-rate taxpayer's mortgage costs more after tax than it appears. Run the rent, the costs and the interest through the tax calculator here and look at what is left; that figure, not the yield, is what pays you.
Against the tax on the profit
Rental profit is added to your other income and taxed at your marginal rate: the basic rate of 20% between the Personal Allowance of £12,570 and £50,270, the higher rate of 40% up to £125,140, and the additional rate of 45% above that. The same yield leaves a very different net result for a basic-rate and a higher-rate taxpayer, which is one reason a good yield is personal.
Against what the capital could earn
The money in the property could be elsewhere. A yield that beats what the same capital would earn with less work and less risk is good; one that does not is a bet on capital growth, which may be a fine bet but should be called one. Judge the yield on today's value for this comparison rather than on the price you paid.
Against the work and the void risk
A high yield in an area with short tenancies and frequent voids costs the landlord in time and in empty weeks; a lower yield on a property let for years to the same tenant may leave more in the bank and far less on the phone. Put realistic void weeks into the calculator and a repairs allowance that matches the property's age, then judge the net figure that results.
Questions people ask about what is a good yield on a rental property
Is there a good yield figure for the UK?
Not one that applies to every property and every landlord. Work the net yield with real costs, then judge it against your finance, your tax rate and the alternatives for the capital.
What is a good yield for a rental property with no mortgage?
One whose net rental profit, after tax at your marginal rate, beats what the capital would earn elsewhere with less work. The tax calculator here shows the after-tax figure.
Does a good yield change with interest rates?
Yes. The yield itself is worked before finance, but what counts as good depends on the interest the profit must cover, so rerun the comparison when rates move.