Gross vs Net Rental Yield — What's the Difference?
Updated March 2026 · 7 min read
Every buy-to-let investor needs to understand two yield figures: gross yield and net yield. Both measure the same thing — how much income a property generates relative to its value — but they measure it at different points. Gross yield is before costs; net yield is after. Getting the distinction right prevents you from overestimating your returns.
What Is Gross Rental Yield?
Gross yield is calculated using rent alone, with no deductions for any costs. It is the headline number used across property market data, by estate agents, and on comparison tools. Because it ignores costs, it can be calculated quickly with just two inputs: the property price and the monthly rent.
Gross Yield = (Annual Rent ÷ Purchase Price) × 100
Annual rent = monthly rent × 12
Gross yield is useful for comparing locations quickly — is Sheffield more attractive than Bristol? Does this postcode beat that one? Because costs vary so much between investors and properties, using the same before-cost figure levels the playing field for comparisons.
What Is Net Rental Yield?
Net yield deducts running costs from the annual rent before dividing by the purchase price. It gives a much more realistic picture of the return you will actually receive in your bank account.
Net Yield = ((Annual Rent − Annual Costs) ÷ Purchase Price) × 100
Costs to include in the net yield calculation:
- Letting agent fees — 8–15% of rent for full management, 4–8% for let-only
- Void periods — empty weeks between tenancies (budget 2–4 weeks per year)
- Maintenance and repairs — industry rule of thumb: 1% of property value per year
- Landlord insurance — buildings, contents, and liability cover: £200–£500/year
- Gas safety certificate, EICR, EPC renewals — spread out, typically £200–£400/year
- Accountancy — if using a limited company structure, £500–£1,500/year
Mortgage interest is sometimes included in net yield calculations, sometimes not. If you include it, you are measuring return on the full purchase price with mortgage costs built in. If you exclude it and divide by your equity (deposit + capital repaid), you get a "cash-on-cash return" — a different metric that will look much higher if you are heavily leveraged.
Worked Example: The Same Property, Both Figures
Take a two-bedroom terraced house in Leeds, postcode LS6:
| Item | Amount |
|---|---|
| Purchase price | £180,000 |
| Monthly rent | £900 |
| Annual rent (× 12) | £10,800 |
| Gross yield | 6.0% |
Now add realistic running costs:
| Cost Item | Annual Amount |
|---|---|
| Gross annual rent | £10,800 |
| Letting agent (10%) | −£1,080 |
| Void allowance (3 weeks) | −£623 |
| Maintenance (1% of value) | −£1,800 |
| Landlord insurance | −£280 |
| Compliance (gas, EICR, EPC) | −£300 |
| Net annual income | £6,717 |
| Net yield | 3.7% |
The gross yield of 6.0% falls to a net yield of 3.7% — a gap of 2.3 percentage points. This is typical. Investors who plan based on gross yield alone often find their actual returns fall short of expectations.
How Big Is the Gap Between Gross and Net?
For most buy-to-let properties in England, the gap between gross and net yield is 1.5 to 3 percentage points, depending on:
- Whether you use a letting agent. Self-managing landlords save the agent fee but invest time instead. The 10% agent fee alone accounts for 0.6 percentage points on a 6% gross yield property.
- Property age and condition. Older properties require more maintenance. New builds may have warranties that reduce repair costs in the early years.
- Location and tenant demand. Areas with strong demand have shorter void periods, which keeps effective rent higher.
- HMO vs single let. HMOs have higher management overheads (multiple tenants, licensing, additional compliance) but also much higher gross yields to compensate.
When to Use Gross Yield
Use gross yield when you are comparing areas, screening opportunities, or discussing returns with agents and other investors. It is the standard benchmark and allows apples-to-apples comparisons without assumptions about your specific cost structure.
The Top 50 rankings on this site use gross yield for this reason — it is the only fair way to compare 2,000+ postcode districts without making assumptions about each investor's costs.
When to Use Net Yield
Use net yield when evaluating a specific property you are seriously considering. At this stage, you can model your actual costs: you know whether you will self-manage or use an agent, you have insurance quotes, you can estimate maintenance based on the property's age and condition, and you have a sense of local void periods from talking to agents.
Net yield is also the metric to use when calculating monthly cashflow — whether the property will generate a surplus or require top-up payments from your own income each month.
A Note on "Return on Equity"
Some investors calculate a third figure: return on equity (or cash-on-cash return). This divides net income by the cash you invested (your deposit plus purchase costs), not the full purchase price. With a 75% LTV mortgage, this number will be roughly four times higher than net yield on the full price — which is why leveraged investors often quote it. It is a legitimate metric but measures something different. Be clear which figure you are using when comparing deals.
Key Takeaways
- Gross yield = annual rent ÷ purchase price × 100. No costs deducted.
- Net yield = (annual rent − annual costs) ÷ purchase price × 100.
- The gap is typically 1.5–3 percentage points in England.
- Use gross yield to compare areas; use net yield to evaluate specific deals.
- Always model net yield before committing to a purchase.