How to Calculate Rental Yield: Gross vs Net Yield Explained
Learn how to calculate gross and net rental yield, what counts as a good yield, and how UK and US investors use yield differently from cap rate.
Last reviewed: 2026 · 7 min read
Run the numbers while you read
Open the matching calculator and test each assumption against your own deal.
Gross Yield: The Quick Screen
Gross Yield = Annual Rent / Purchase Price x 100
Gross rental yield divides annual rent by the property price. A property costing £220,000 and renting for £1,250 per month collects £15,000 per year, a gross yield of about 6.8%.
Gross yield is the number most listings and portals quote because it needs no expense data. That convenience is also its weakness: it treats a low-maintenance freehold house and a high-service-charge flat as identical.
Net Yield: The Number That Pays You
Net Yield = (Annual Rent - Annual Operating Costs) / Purchase Price x 100
Net yield subtracts the running costs: letting agent fees, repairs and maintenance, insurance, service charges and ground rent, compliance and safety certificates, and an allowance for void periods.
Take the same £220,000 property. If operating costs total £4,000 per year, net income is £11,000 and net yield is 5.0%. The 1.8-point gap between gross and net is where weak deals hide.
What Is a Good Rental Yield?
Many UK buy-to-let investors treat gross yields of 6% to 8% as healthy, with northern cities often yielding more than London and the South East, where investors accept lower yields in exchange for expected capital growth.
The benchmark that matters is local: compare against similar properties in the same postcode area, and against your mortgage rate. A 5.5% gross yield financed at a 5.5% interest-only rate leaves nothing for expenses.
Yield vs Cap Rate
Gross yield and cap rate answer different questions. Cap rate uses net operating income, so it is closer to net yield than gross yield. US investors typically quote cap rates while UK investors quote yields, but the underlying discipline is identical: net income relative to price is what supports the investment.
Common Mistakes
- Quoting gross yield when comparing properties with very different service charges or maintenance profiles.
- Ignoring void periods; even one empty month cuts annual income by over 8%.
- Using asking price instead of total acquisition cost including stamp duty, legal fees, and initial works.
- Forgetting that yield excludes mortgage costs; cash flow after financing is a separate calculation.
Frequently Asked Questions
What is a good rental yield in the UK?
Many investors consider 6% to 8% gross a healthy range, with significant regional variation. Net yield after real operating costs is the better decision metric, and it should be compared against local comparables and your financing cost.
Is rental yield the same as return on investment?
No. Yield compares rent to property price and ignores financing. Return on cash invested measures cash flow after mortgage costs against the deposit and fees you actually paid, so a leveraged property can have a modest yield and a strong or negative cash return.
Educational Disclaimer
All calculations are estimates for educational and planning purposes only. PropertyFlowTools.com does not provide financial, tax, legal, lending, or investment advice. Verify calculations and consult qualified professionals before making property or financing decisions.