Rental yield calculator

Gross yield divides the annual rent by the purchase price. A house bought for £150,000 renting at £850 a month collects £10,200 a year, which is a 6.8% gross yield. That figure ignores every cost of actually running the tenancy, which is why it always looks better than the real return.

Net yield starts from the same annual rent but takes off the running costs first: management, insurance, maintenance, compliance certificates, ground rent and service charge on leaseholds, and an allowance for empty weeks between tenants. On the same example, £150 a month of costs leaves £8,400 a year, a 5.6% net yield. The 1.2 point gap between the two numbers is where optimistic deal appraisals usually hide.

It depends on where you buy, and anyone quoting one national number is smoothing over a big spread. Yields in much of the North East, parts of Scotland and Northern Ireland commonly sit above 8% gross because prices are low relative to rents. In London and the commuter belt, 4 to 5% gross is normal and investors there are usually buying growth rather than income.

As a working rule for an income deal: below 5% gross is hard to make cashflow once a mortgage is on it, 6 to 7% is workable, and 8% or more is strong. Judge the deal on net yield and monthly cashflow after the mortgage, not the gross headline.

Both are legitimate and they answer different questions. Yield on what you paid tells you the return on your own money and flatters properties bought cheaply years ago. Yield on current market value tells you whether keeping the property still beats selling it and buying something else. For appraising a new deal the purchase price version is the one that matters, and it is what this calculator uses.