How to calculate rental yield
Rental yield is the annual rent shown as a percentage of the property value. The formula for gross rental yield is the annual rent divided by the property value, times 100. UK rent is usually quoted per month, so multiply the monthly figure by 12 first. On a £250,000 property let at £1,200 a month, the annual rent is £14,400 and the gross yield is 5.76%.
Gross yield vs net yield
Gross yield ignores costs, so it flatters the return. Net yield takes off your annual running costs first, which makes it the figure worth comparing properties on. Costs to include are letting and management fees, landlord insurance, maintenance and repairs, any ground rent or service charge on a leasehold flat, and the rent lost during void periods when the property sits empty. Net yield is the annual rent minus those costs, divided by the property value, times 100.
What is a good rental yield in the UK?
The average UK rental yield runs between about 5% and 8%. As a rough guide, a yield around 5% to 6% is treated as good, and above 6% as very good. Yields vary widely by region, with parts of the North of England and university cities often running higher than London and the South East. A high gross yield is only worth chasing if the net yield holds up once costs and void risk are taken into account.
Gross yield at common UK rents on a £250,000 property
| Monthly rent | Annual rent | Gross yield |
|---|---|---|
| £900 | £10,800 | 4.32% |
| £1,100 | £13,200 | 5.28% |
| £1,200 | £14,400 | 5.76% |
| £1,400 | £16,800 | 6.72% |
| £1,600 | £19,200 | 7.68% |
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Simon is the founder of Orbit Money, a tool that helps people track subscriptions and recurring spend. He builds Orbit's free money calculators and writes about personal finance for UK and Australian readers.
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