How to Calculate Rental Yield

What Is Rental Yield?

Rental yield is the annual rental income from a property expressed as a percentage of its purchase price (or current market value). It is the standard way to compare returns across different properties and locations — much like comparing interest rates on savings accounts.

A higher yield means you are generating more income for every pound you invest. A terraced house in Sunderland at £70,000 renting for £550/month delivers a much higher yield than a flat in London at £450,000 renting for £1,800/month — even though the London rent is more than three times higher in absolute terms.

There are two versions: gross yield (before costs) and net yield (after costs). Both are useful, but they measure different things.

Gross Rental Yield Formula

Gross yield ignores all costs and gives you a quick, comparable number. It is the metric used across this site and across most property data providers, because costs vary so much by investor that they cannot be standardised.

• Annual Rent — the total rent you expect to collect in 12 months at full occupancy
• Purchase Price — what you paid (or will pay) for the property, before costs
• The result is a percentage. Multiply by 100 to express it that way.

Gross Yield: Worked Example

Let's take a two-bedroom terrace in Sheffield, postcode district S2:

Calculation: (£9,000 ÷ £130,000) × 100 = 6.92%

This is a healthy yield. A property in the same postcode district selling for £160,000 at the same rent would only yield 5.6% — demonstrating how sensitive yield is to price.

Net Rental Yield Formula

Net yield accounts for running costs and gives a more realistic picture of your actual return. It is more complex to calculate because every investor's cost structure is different, but it is the number that ultimately matters for cashflow.

Typical annual costs to include:

• Letting agent fees — typically 8–15% of monthly rent for full management
• Void periods — budget for 2–4 weeks empty per year (around 5–8% of annual rent)
• Maintenance and repairs — rule of thumb: 1% of property value per year
• Landlord insurance — typically £150–£400/year depending on property type
• Gas safety certificate, EICR, EPC — around £200–£400/year when spread out
• Mortgage interest — only if you want to measure return on equity rather than asset value

Note: some investors calculate net yield using their equity (cash invested) as the denominator rather than purchase price. That version is technically "return on equity" or "cash-on-cash return" and will produce a much higher number if you have a large mortgage. Our calculator shows both.

Net Yield: Worked Example

Using the same Sheffield property (£130,000 purchase, £750/month rent):

Calculation: (£5,558 ÷ £130,000) × 100 = 4.3%

The gross yield of 6.9% drops to a net yield of 4.3% once realistic costs are accounted for. This is why focusing only on gross yield can be misleading, particularly in higher-cost areas.

Gross vs Net Yield: Which Should You Use?

Both metrics serve a purpose. Use gross yield for comparing areas quickly — it is standardised, free from assumptions, and the number reported in property market data. Use net yield for evaluating a specific deal — once you have a property in mind and real cost estimates.

Real Postcode Examples

To show how yield varies by location, here are four real postcode districts from our database, calculated from HM Land Registry and VOA data:

Data from HM Land Registry Price Paid (3-year median) and VOA Private Rental Market Statistics. Browse all postcode districts on the homepage.

Use the Free Rental Yield Calculator

Rather than doing the maths manually, use our free calculator. Enter the purchase price, monthly rent, deposit size, and running costs to get both gross yield and net yield instantly.

Related Guides