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Living FranchiseHow to calculate rental yield (and what’s a good rental yield in the UK?
Learn how to calculate gross and net rental yield step by step, what a good rental yield is in the UK by area and strategy, and how sourcers use yield to assess deals.
To calculate rental yield, divide the annual rent by the property’s price and multiply by 100. A property bought for £150,000 and let for £850 a month (£10,200 a year) has a gross rental yield of 6.8%. Net yield takes your running costs off the rent first, so it’s always lower. In the UK, many investors see a gross yield of around 5% to 8% as good for a single let, with HMOs often higher.
Yield is one of the quickest ways to compare property deals. This guide shows you how to work out gross and net yield step by step, what counts as a good yield by strategy and area, and the mistakes to avoid.
Key takeaways
- Gross yield = annual rent ÷ property price × 100.
- Net yield takes off running costs such as agent fees, insurance, repairs and empty periods.
- A good gross yield for a single let is often around 5% to 8%, depending on the area.
- Higher yields usually come with more work or more risk.
- Yield doesn’t show your return on the cash you put in. For that, use ROI or ROCE.
What is rental yield?
Rental yield is the rent a property earns each year, shown as a percentage of what it cost. It tells you how hard a property works for its price, so you can compare a £120,000 terrace in one town with a £250,000 flat in another on equal terms.
There are 2 main types:
- Gross yield: rent before any costs. Quick to work out, and what most adverts quote.
- Net yield: rent after running costs. More realistic, and what matters for your income.
How to calculate gross rental yield
Gross rental yield = (annual rent ÷ property price) × 100
- Work out the annual rent. Multiply the monthly rent by 12. For example, £850 × 12 = £10,200.
- Divide by the property price. £10,200 ÷ £150,000 = 0.068.
- Multiply by 100. 0.068 × 100 = 6.8% gross yield.
How to calculate net rental yield
Net rental yield = ((annual rent − annual running costs) ÷ property price) × 100
Using the same property:
| Item | Amount per year |
|---|---|
| Annual rent | £10,200 |
| Letting agent fees (12%) | −£1,224 |
| Landlord insurance | −£300 |
| Repairs and maintenance | −£800 |
| Empty periods (1 month) | −£850 |
| Safety certificates | −£200 |
| Net rental income | £6,826 |
£6,826 ÷ £150,000 × 100 = 4.55% net yield.
These costs are an example. Use real quotes for the property you’re looking at. Mortgage costs are usually left out of net yield and looked at separately, because they depend on how you finance the deal.
Should you use the purchase price or the total cost?
For a quick comparison, use the purchase price. For a more accurate figure, divide by your total cost: the price plus stamp duty, legal fees and any refurbishment. If the property above needed £15,000 of costs on top of the price, the gross yield on total cost would be £10,200 ÷ £165,000 × 100 = 6.2%.
What is a good rental yield in the UK?
There’s no single figure, because a good yield depends on the strategy, the area and how much work you’re willing to put in. As a rough guide:
| Strategy | Typical gross yield | Things to consider |
|---|---|---|
| Single let in London and the South East | Often around 3% to 5% | Lower yields, but historically stronger price growth |
| Single let in the North and Midlands | Often around 6% to 9% | Lower prices mean higher yields |
| HMO | Often 8% to 12% or more | Higher running costs, licensing and more management |
| Serviced accommodation | Varies widely | Depends on occupancy, nightly rates and cleaning costs |
These are broad ranges, not guarantees. Always check local rents and sold prices for the exact street and property type. Our guide to the best places to buy rental property shows yields by area, from Sunderland at 9.3% to Liverpool at around 7% to 8%.
How to calculate yield on an HMO
For an HMO, add up the rent from every room. A 5-bedroom HMO with rooms at £550 a month earns £2,750 a month, or £33,000 a year. If it cost £220,000, the gross yield is £33,000 ÷ £220,000 × 100 = 15%.
HMO running costs are much higher than a single let, because landlords usually pay the bills, and there’s more cleaning, maintenance and management. So the gap between gross and net yield is bigger. Read what an HMO is.
Rental yield vs ROI vs ROCE
Yield compares rent with the property’s price. It doesn’t show the return on the cash you actually put in, which matters when you use a mortgage. For that, investors use return on investment (ROI) or return on capital employed (ROCE). Read ROI, ROCE and yield: what’s the difference?
Common mistakes when calculating rental yield
- Using the asking rent, not the achieved rent. Check what similar properties have actually let for.
- Quoting gross yield as if it were income. Net yield is what you’ll actually earn.
- Forgetting empty periods. Even good properties sit empty between tenants.
- Ignoring licensing and compliance costs, especially for HMOs.
- Chasing the highest yield. Very high yields can mean low demand, poor condition or higher risk.
How property sourcers use rental yield
Property deal sourcers use yield to screen deals quickly before running the full numbers for investors. A deal pack usually shows the gross and net yield alongside the purchase price, refurbishment costs, end value and return on cash invested. Learning to analyse deals this way is a core skill for becoming a property deal sourcer.
Frequently asked questions
How do I calculate rental yield?
Divide the annual rent by the property price and multiply by 100. For example, £10,200 a year on a £150,000 property is a 6.8% gross yield.
What is a good rental yield in the UK?
Many investors see around 5% to 8% gross as good for a single let. Yields are usually lower in London and the South East, and higher in the North, the Midlands and for HMOs.
What is the difference between gross and net yield?
Gross yield uses the rent before costs. Net yield takes off running costs such as agent fees, insurance, repairs and empty periods, so it’s always lower and closer to what you’ll earn.
Is a higher rental yield always better?
No. A high yield can come with more management, more empty periods or weaker price growth. Compare yield alongside demand, condition, area and your goals.
Do you include the mortgage in rental yield?
Usually not. Yield is normally worked out before mortgage costs, so you can compare properties fairly. Use ROI or cash flow to see the effect of your mortgage.
How much will my property rent for?
Check what similar properties nearby have actually let for, and ask a local letting agent. Use the achieved rent, not the asking rent, when you work out yield.
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