Getting rental yield right is fundamental to buying well, holding with confidence, and deciding when to refinance or exit. Here is a simple guide for the UK.

This will help you go from a blank page to clear gross and net yield figures. You will find notes on what to include, what to keep separate, and how to understand the results. No fluff—just a method you can reuse for any property.

Decide the value you’ll use

Rental yield is always a percentage of income divided by property value. Before touching a calculator, choose the value basis and stick to it for all comparisons:

  • Purchase price: This includes any acquisition costs you want to add. Reviewing how well a property you own has performed in the past is useful.

  • Current market value: This is what something would sell for today. Useful for comparing opportunities or checking your portfolio at today's prices.

Both are valid, but mixing them will distort the picture. To keep portfolio reports consistent, many UK landlords use the current market value. That lets them compare a London flat bought years ago with a new-build up north fairly.

Tip: If you are unsure about market value, get a balanced view. Look at local agent opinions, recent sales, and check the yields in the same area.

 

Annualize your rental income

Yield is an annualized measure, so convert whatever rent frequency you have into a yearly figure:

  • Monthly AST rents → multiply by 12.

  • Weekly rents (still common in some areas) → multiply by 52.

  • Room-by-room/HMO → multiply each room’s monthly rent by 12, then sum.

If you’re assessing a prospective purchase, be conservative on rent. Use what the property can achieve today in its current condition—not an optimistic post-refurb guess. If you’re evaluating an existing lease, use the actual rent being achieved on the tenancy agreement.

You may also model a void allowance (e.g., 2–4 weeks between tenancies). Keep this separate for now. Gross yield does not consider void assumptions. We will include voids later when we look at net figures and sensitivities.

List your annual operating costs

To move from gross to net yield, you’ll subtract owner-paid operating expenses. Prepare a simple list you can reuse across properties:

  • Letting/management fees (percentage of rent + VAT).

  • Service charges & ground rent (leasehold flats).

  • Buildings insurance and, if relevant, landlord contents insurance.

  • Maintenance & repairs (include a realistic annual allowance; older or heavily tenanted properties usually need more).

Safety & Compliance:

  • There is an annual Gas Safety Record.

  • An Electrical Installation Condition Report (EICR) is required every five years in England.

  • Smoke and carbon monoxide (CO) alarms must be maintained.

  • Legionella checks are needed for certain setups.

  • Licensing fees: Selective licensing, Additional/HMO licensing where required, spread over the licence period to an annual figure.

  • Void & re-let costs: cleaning, light décor, inventories, referencing—again annualised.

  • Utilities you pay as landlord (some HMOs, serviced lets, or inclusive-bills arrangements).

  • Council Tax if you cover it (e.g., between tenancies or specific rental models).

What not to include here (for standard “net yield”): mortgage interest and capital repayments. In UK property analysis, “net yield” typically means operating net yield (similar to net operating income divided by value). Finance costs are owner-specific and are better assessed when you look at cash-on-cash returns.

If you want a net figure for your bookkeeping, label it clearly. For example, use “net yield after interest.” This way, you won’t confuse it with someone else’s pre-finance net yield.

Calculate Gross Rental Yield

Formula:

Gross Rental Yield (%) = (Annual Rent ÷ Property Value) × 100

Example (single-let flat):

  • Monthly rent: £1,200 → annual rent £14,400

  • Current market value: £240,000

  • Gross yield = £14,400 ÷ £240,000 × 100 = 6.0%

Gross yield is a screening tool. It tells you quickly whether the income is in the right ballpark for the area and the risk you’re taking. It does not tell you how much profit you’ll actually keep—that’s next.

Calculate Net Rental Yield

Formula:

Net Rental Yield (%) = ((Annual Rent − Annual Operating Expenses) ÷ Property Value) × 100

Continue the example and add realistic annual costs:

  • Management (10% + VAT on £14,400) → approx £1,728

  • Service charge & ground rent → £1,800

  • Insurance → £250

  • Maintenance allowance → £600

  • Safety & compliance (annualized) → £150

  • Void/re-let allowance → £300

Total operating expenses: £4,828

Net operating income (NOI): £14,400 − £4,828 = £9,572

Net yield: £9,572 ÷ £240,000 × 100 = 3.99%

That 6.0% gross quickly becomes ~4.0% net once you respect the real-world line items a UK landlord pays.

If you want to track your mortgage interest, calculate a separate “net yield after interest” for yourself. Please do not compare your number to someone else's unless you use the same method.

Sense-check with a calculator

Once you can do the calculations on paper, it helps to test different scenarios. You can try voids, fee changes, or service charge increases without having to redo the math each time. Many landlords use tools like a rental yield calculator. They do this to check their assumptions and keep their numbers consistent.

Build two worked examples

Leasehold city flat (standard AST)

  • Value: £350,000

  • Monthly rent: £1,650 → £19,800 p.a.

  • Expenses p.a.:

  • Management 12% + VAT → ~£2,851

  • Service charge & ground rent → £2,600

  • Insurance → £250

  • Maintenance → £700

  • Safety & compliance (annualised) → £160

  • Void/re-let allowance → £350

  • NOI: £19,800 − £6,911 = £12,889

  • Gross yield: 19,800 ÷ 350,000 × 100 = 5.66%

  • Net yield: 12,889 ÷ 350,000 × 100 = 3.68%

What this tells you: Even with a decent rent, service charges and management compress net yield. Common for leasehold flats in larger UK cities. It doesn’t make them “bad”—know you’re paying for convenience and amenities.

4-bed HMO in a regional town

  • Value: £250,000

  • Four rooms @ £525 pcm each → monthly gross £2,100 → £25,200 p.a.

  • Expenses p.a.:

  • Management 12% + VAT on £25,200 → ~£3,627

  • Utilities (included for tenants) → £2,400

  • Council Tax (landlord pays) → £1,900

  • Insurance (buildings + landlord) → £400

  • Maintenance (heavier use) → £1,200

  • Safety & compliance (annualized: alarms, Gas Safety, EICR share) → £300

  • Licensing fee (annualized) → £300

  • Void/re-let allowance (rooms turn more often) → £800

Total expenses: £10. Let's take a moment to calculate carefully. We will do the math in our heads.

First, 3627 plus 2400 equals 6027. Next, add 1900 to get 7927. Then, add 400 to reach 8327. Now, add 1200 to get 9527. Next, add 300 to reach 9827. Add another 300 to get 10127. Finally, add 800 to reach 10927.

  • The total expenses are £10,927.

  • NOI: £25,200 − £10,927 = £14,273

  • Gross yield: 25,200 ÷ 250,000 × 100 = 10.08%

  • Net yield: 14,273 ÷ 250,000 × 100 = 5.71%

What this tells you: Room-lets can provide higher gross yields. However, costs like utilities, Council Tax, compliance, and turnover are significant. Your net yield advantage survives—but only because you priced those costs honestly at the outset.

Understand what “good” yield means in the UK context

There isn’t a single “good” number across the UK. A yield that seems small in a northern town could be great in a top London area. It's true when you think about capital stability and liquidity. Think in terms of trade-offs:

  • Growth vs income: Areas with stronger long-term capital growth usually have lower yields, and vice versa.

  • Hands-on vs hands-off: Self-managing, doing light maintenance yourself, or running HMOs can lift net yields, but they demand time and systems.

  • Leasehold vs Freehold: Flats usually have service charges and ground rent, which lower net yields. Houses may avoid some of these costs, but often need more direct maintenance.

Instead of focusing on a headline percentage, choose the minimum net yield that fairly rewards your work and risk. Review this choice every year.

Separate yield from other return metrics

Yield is powerful, but it does not capture everything:

  • Cap rate (NOI ÷ value): In practice, the UK “net yield” as used above is close to a cap rate. It’s the best like-for-like comparator between assets before finance.

  • Cash-on-cash return: Annual pre-tax cash flow divided by the cash you put in (deposit + acquisition costs + refurb). That tells you how hard your invested money is working once the mortgage is in place.

  • Total return: Adds capital growth to your income return, which matters over multi-year horizons.

Use gross yield to filter deals quickly. Use net yield (cap-style) to compare assets before financing. Use cash-on-cash to see if the gearing and cash position work for you.

Run a quick sensitivity test

Small changes can move the net yield more than you think:

  • Vacancy: One extra empty month on a £1,200 pcm flat removes £1,200 income. On the leasehold example, that alone would cut net yield by roughly 0.3–0.5 percentage points, depending on the starting NOI.

  • Management fees: A shift from 10% to 12% + VAT takes another ~2.4% of rent—not trivial.

  • Service charges: A £300 uplift on a flat with modest NOI has a noticeable impact on net yield. Build a cushion for future increases when you evaluate blocks with lifts, concierge, or big communal areas.

A simple table with “base case”, “optimistic”, and “conservative” rows keeps you honest when comparing options.

Put your numbers to work

  • Before you buy: Use gross yield as the first pass. If it clears your cut, move to net yield with disciplined, UK-specific costs. Only then layer in finance to check cash-on-cash.

  • While you hold: Recalculate net yield annually at current market value and with your latest actual costs. That helps you spot creeping service charges or maintenance trends and justifies rent reviews.

  • When refinancing, Many lenders look closely at income coverage and the durability of NOI. A well-documented net yield, with clear line items for compliance and realistic voids, helps your case and speeds up decisions.

A reusable checklist you can copy into your notes

  1. Choose value basis: purchase price (historic) or current market value (comparable).

  2. Annualize rent: monthly × 12 or weekly × 52; for HMOs, sum all rooms.

List of UK Operating Costs:

  • Management and VAT

  • Service charge and ground rent

  • Insurance

  • Maintenance

  • Safety and compliance

  • Licensing

  • Voids and re-letting

  • Utilities you pay

  • Landlord-paid Council Tax if needed

  1. Gross yield: annual rent ÷ value × 100.

  2. Net yield: (annual rent − operating expenses) ÷ value × 100.

  3. Optional: personal “net after interest” for your own files—do not compare externally.

  4. Sanity check: run sensitivities (voids, fees, charges).

  5. Decide: buy/hold/refinance based on net yield and your wider return targets.

Conclusion

The best investors in the UK treat yield as a discipline, not just a number. They set the value basis and use conservative income. They respect every cost that UK landlords pay. They also keep a record to review each year.

Follow the steps above. Your gross and net yields will be clear and easy to compare for each property.