You have found a flat, the listing shows an asking price, and the agent has quoted a monthly rent. The question underneath all of it is simple: how much does this property actually earn against what it cost you? Rental yield is the number that answers that, and you can work it out in about a minute once you know the formula.
Start with the question yield actually answers
Every buy-to-let comes down to one comparison: what the property earns each year against what it cost. Rental yield turns that into a single percentage, so you can line up a two-bed terrace in Leeds against a flat in Bristol, or against leaving the money in a savings account. It is the first sanity check on any deal.
The rental yield formula for 2026
There are two versions, and both matter.
Gross yield
Gross yield = (annual rent ÷ property price) × 100
Annual rent is the monthly rent times 12. It ignores costs entirely, which makes it quick but optimistic. Use it for a first pass when you are scanning listings.
Net yield
Net yield = ((annual rent − annual running costs) ÷ property price) × 100
Net yield strips out the money that leaves your account every year before any mortgage payment: management fees, insurance, repairs, safety certificates, and an allowance for empty months. It tells you what the property really returns.
A worked example you can copy
Take a freehold terraced house bought for £180,000, let at £950 a month.
Annual rent = £950 × 12 = £11,400.
Gross yield = £11,400 ÷ £180,000 × 100 = 6.3%.
Now the running costs for a year:
- Letting and management fees (10% of rent): £1,140
- Landlord insurance: £250
- Repairs and maintenance allowance: £600
- Gas safety, EPC and other compliance: £120
- Void allowance (roughly two to three weeks empty): £450
Total running costs = £2,560.
Net income = £11,400 − £2,560 = £8,840.
Net yield = £8,840 ÷ £180,000 × 100 = 4.9%.
That 1.4 percentage-point gap between gross and net is exactly why you should never judge a deal on gross alone.
The stricter version: yield on cash invested
The purchase price is not the same as what you actually paid. A truer denominator adds your buying costs: stamp duty, legal fees, and any survey or refurbishment. Buy-to-let purchases in England carry a 5% additional-property SDLT surcharge on top of standard rates (as of the 2025-26 rules; check current bands at gov.uk). On a £180,000 additional property that is roughly £10,100 of SDLT, plus say £1,800 in legal and survey fees, so about £192,000 all in.
| Measure | Formula | Worked figure | Result |
|---|---|---|---|
| Gross yield | annual rent ÷ price | £11,400 ÷ £180,000 | 6.3% |
| Net yield | (rent − costs) ÷ price | £8,840 ÷ £180,000 | 4.9% |
| Net yield on cash in | (rent − costs) ÷ total invested | £8,840 ÷ £192,000 | 4.6% |
Same property, three honest numbers. Which one you quote depends on the question you are asking.
Gross vs net: when to use each
- Gross yield for speed. Scanning a portal, comparing towns, or filtering a shortlist. It is directionally useful and easy to eyeball.
- Net yield for decisions. Before you offer, before you refinance, and whenever you compare two properties with different service charges or management setups. A leasehold flat with an £1,800 annual service charge can show a healthy gross yield and a poor net one.
- Net yield on cash invested for the honest picture of your return on the money that actually left your account.
Get the inputs right first
Yield is only as good as its two inputs, so two quick checks matter more than any refinement to the formula:
- Rent: use an achievable figure, not the top of the agent's range. Look at what comparable properties on the same street actually let for, and lean conservative.
- Price: use the price you will pay, not the asking price. If you expect to negotiate, run the yield at your likely offer.
What net yield leaves out
Yield is not the whole story, and it helps to know its blind spots:
- Mortgage interest. Yield is a property-level measure, so it ignores your financing. Return on your actual deposit is a separate calculation (cash-on-cash return).
- Tax. Section 24 restricts mortgage-interest relief for individual landlords to a 20% basic-rate tax credit rather than a full deduction; companies still deduct interest in full (as of the 2025-26 tax year; see gov.uk). Yield is a pre-tax figure.
- Capital growth. A lower-yielding property in a stronger area may still come out ahead on total return once price growth is counted.
- Rate movements. Mortgage rates and the Bank of England base rate change often, so a deal that stacks up today may look different on renewal. Treat any rate you use as accurate at the time of writing and check current figures.
Let the calculator fill it in
Once you understand the formula you do not need to do the arithmetic by hand every time. The free rental yield calculator takes the price, the monthly rent and your running costs and returns gross and net yield instantly, which makes it quick to test a few rent or price scenarios before you offer. It is the same maths as above, without the mental arithmetic.
A reasonable working habit: use gross yield to shortlist, run net yield on the two or three properties that survive, and only then bring in mortgage, tax and growth.
The short version
- Gross yield = annual rent ÷ price × 100.
- Net yield = (annual rent − running costs) ÷ price × 100.
- For the truest figure, divide by total cash invested, not just the price.
- Always decide on net, never on gross.
This is general information, not tax or financial advice.
