How to calculate rental yield: a UK landlord's guide with worked examples

22 September 2026 · AgentCheck Editorial · 8 min read

Part of our Landlord Tax Guide

Rental yield is your annual rent expressed as a percentage of what the property is worth. Gross yield divides annual rent by the property value. Net yield subtracts running costs first: management fees, insurance, safety certificates, maintenance and void periods. Net yield is the honest number. A property showing 6.6% gross can easily come in under 4% net.

Most landlords can quote their gross yield off the top of their head. Far fewer can tell you what the property actually returns once the bills are paid, and that gap is where buy-to-let decisions go wrong. This guide walks through all three calculations that matter, with a full worked example you can copy for your own numbers.

What rental yield actually measures

Yield is an income measure. It tells you how hard the money tied up in a property is working each year, ignoring any change in the property's value. Capital growth is a separate question, and the two often pull in opposite directions: the areas with the strongest price growth tend to show the weakest yields, because prices have risen faster than rents.

There are three numbers worth knowing, and they answer different questions.

Measure Formula Question it answers
Gross yield (Annual rent ÷ property value) × 100 Is this property worth a closer look?
Net yield ((Annual rent − running costs) ÷ property value) × 100 What does the property really earn?
Cash-on-cash return (Annual cash flow after mortgage ÷ cash invested) × 100 What is my own money earning?
Three small houses sitting on top of a piece of paper
Photo: Unsplash

Gross rental yield: the quick filter

Gross yield takes about ten seconds to work out, which is exactly what it is for. Use it to sift a shortlist of properties, never to make a final decision.

Take the monthly rent, multiply by twelve, divide by the purchase price or current value, then multiply by 100. A property at £150,000 letting for £825 a month gives you £9,900 a year. Divide that by £150,000 and you get 0.066, so a gross yield of 6.6%.

One decision matters here: purchase price or current market value? Use the purchase price when you are comparing properties you might buy. Use current value when you are reviewing a property you already own, because that is the capital you could release and put somewhere else. Landlords who bought a decade ago and still calculate against the old purchase price flatter themselves badly.

Net rental yield: the number that matters

Net yield strips out the cost of running the property. It is more work, and it is the only figure worth acting on.

The costs to deduct are the ones that recur every year whether or not the property is let:

  • Letting agent fees, if the property is managed
  • Landlord insurance
  • Gas safety certificate, EICR and boiler servicing
  • A maintenance allowance for repairs and replacements
  • A void allowance for the weeks between tenancies
  • Ground rent and service charge on a leasehold flat
  • Accountancy and licensing fees

Mortgage interest is deliberately left out of net yield. Yield measures the property; the mortgage measures how you chose to finance it. Two landlords buying identical flats with different deposits get the same net yield and very different cash flow, which is why the third calculation exists.

Black desk calculator on brown wooden table
Photo: Unsplash

Worked example: a £150,000 two-bed terrace

Same property as above: £150,000, letting at £825 a month, £9,900 a year, freehold so no service charge. Here is what a realistic year of costs looks like.

Cost Annual Basis
Full management fee £1,188 12% of rent including VAT
Landlord insurance £280 Buildings plus liability cover
Safety certificates and servicing £220 Annual CP12 plus EICR spread over five years
Maintenance allowance £1,500 1% of property value, a common rule of thumb
Void allowance £571 Three weeks empty per year
Accountancy £250 Self assessment return
Total costs £4,009

Net income is £9,900 minus £4,009, so £5,891. Divide that by £150,000 and the net yield is 3.9%. The gross figure of 6.6% has lost more than 40% of its value on contact with reality, and nothing unusual has happened. No boiler failed, no tenant stopped paying.

Cash-on-cash return: what your own money earns

Now add the mortgage. Say you put down a 25% deposit of £37,500, paid £9,000 in stamp duty and purchase fees, and spent £3,500 getting the property ready. Your cash in is £50,000. The £112,500 mortgage on an interest-only basis at 4.9% costs £5,513 a year.

  1. Net income from the property: £5,891
  2. Less mortgage interest: £5,513
  3. Pre-tax cash flow: £378
  4. Cash-on-cash return: £378 ÷ £50,000 = 0.76%

That is the real picture for a leveraged purchase at today's rates, and it is why so many landlords who bought on cheap money in 2019 are finding their numbers unrecognisable on remortgage. A half-point movement in the rate swings that £378 by roughly £560, which is enough to flip the property from modest profit to loss.

One further wrinkle. If you own in your own name rather than through a company, you cannot deduct that mortgage interest as an expense. You get a basic rate tax credit worth 20% of the interest instead, so higher rate taxpayers pay tax on rent they never see. Run your tax position separately from your yield calculation.

What counts as a good rental yield?

There is no single threshold, because yield is a trade against capital growth and against risk. A 4% gross yield in a settled southern commuter town and a 10% gross yield on a licensable HMO in a student city are not comparable investments, and the second one is a job as much as an asset.

More useful than a target number is a test: does the net yield beat what the same cash would earn somewhere safe, by enough to pay you for the work, the void risk and the illiquidity? In the worked example above, a net yield of 3.9% unleveraged is arguable. A cash-on-cash return of 0.76% is not, unless you are buying specifically for capital growth and know that is what you are doing.

The costs landlords forget to deduct

Most inflated yield calculations come from the same handful of omissions:

  • Void periods. Assuming 52 weeks of rent is the most common error. Three weeks of vacancy on a £825 property costs £571, which is more than the insurance.
  • Tenant find fees. If tenants change every eighteen months, a re-letting fee lands roughly twice every three years. Spread it across the years.
  • Capital replacement. Boilers, kitchens, bathrooms and roofs all have a finite life. A maintenance allowance that only covers dripping taps is not an allowance.
  • Licensing. Selective and HMO licensing schemes carry fees running into hundreds or thousands of pounds per property, and they vary by council.
  • Arrears. Even good tenants occasionally pay late, and occasionally they stop.

How letting agent fees change the maths

Management fees are usually the largest single running cost, and the spread between agents is wide. Full management is commonly quoted somewhere between 10% and 15% including VAT, on top of which sit tenant find fees, renewal fees, inventory charges and sometimes a cut of contractor invoices.

On the worked example, moving from a 15% inc VAT management fee to a 10% one saves £495 a year. That is a 0.33 percentage point improvement in net yield from a phone call, which is a better return than most refurbishments. The trap is judging on headline percentage alone: an agent at 10% who adds a renewal fee, an inventory fee and a markup on repairs can cost more over three years than one at 13% with nothing else attached. Always compare the total annual cost, not the headline rate.

AgentCheck lists 14,355 letting agents across 771 UK areas, with fees shown side by side so you can see what the whole package costs before you sign anything.

Common yield mistakes

  1. Calculating against a purchase price from years ago rather than current value.
  2. Using the advertised asking rent instead of what the property realistically achieves.
  3. Comparing your net yield to someone else's gross yield and concluding you are underperforming.
  4. Treating mortgage interest as an allowable expense when you own in your own name.
  5. Ignoring the cost of the capital tied up: a property at 3.9% net with £100,000 of dormant equity is not the same investment as the day you bought it.

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