Rental yield explained: gross, net and cash return

Rental yield is the quick measure landlords and buyers use to compare properties as investments. It expresses a year's rent as a percentage of the price, so a flat in one town can be compared with a house in another. But there are several versions of the figure, and the one in a listing is usually the most flattering. This guide explains gross yield, net yield and the return on the cash you actually put in, using a single worked example for a £210,000 property in England. It includes the additional-property stamp duty surcharge, the running costs most listings leave out, an interest-only mortgage, and the other things a yield does not tell you, such as tax, voids and the chance of the property rising or falling in value.

By Valtrinity. Updated 18 October 2026.

Gross rental yield

Gross yield is annual rent divided by the purchase price, multiplied by 100. It ignores all costs. If a property costs £210,000 and lets for £1,100 a month, the annual rent is £13,200. Dividing by £210,000 gives 6.29 per cent.

This is the figure in most adverts and on most listing sites, because it is the highest of the three. It is useful for a first look, to see whether a property is in the right range, but it does not say how much you will keep.

Use the rent you can realistically expect, not a hopeful one. Check what similar properties in the same street are actually let for, and ask a local letting agent for a view.

The costs that sit between rent and profit

Landlords face running costs every year. Using the example, suppose a letting agent charges 10 per cent of the rent (£1,320), landlord insurance is £350, repairs and maintenance are £1,000, safety certificates and compliance checks are £250, and you allow for one month of the year with no tenant, which costs £1,100 in lost rent. The total is £4,020.

Other costs may apply: service charge and ground rent on a leasehold flat, which can be large, a licence in some council areas, and the costs of finding a new tenant. Fees quoted by agents often include VAT, so check whether the percentage you are given is before or after it.

A common rule of thumb is to allow a quarter to a third of the rent for costs, but the real amount depends on the property. A newer property in good condition costs less to run than an older one that needs frequent repairs.

Net rental yield

Net yield uses the rent after running costs. In the example, £13,200 minus £4,020 is £9,180. Divided by the £210,000 price, that is 4.37 per cent. Compare that with the gross 6.29 per cent: nearly two percentage points have disappeared into costs.

A fairer version of net yield divides by the total cost of acquiring the property, not only the price. That includes stamp duty, legal fees and surveys. The total shows how much money it really took to own the property.

Net yield here is before income tax and before mortgage interest. Both depend on your own situation, so they are treated separately.

Stamp duty on a second property

In England, buying an additional residential property attracts a surcharge on top of the standard rates of Stamp Duty Land Tax. GOV.UK gives the higher rate for additional properties as 5 per cent on top of the standard rates. The standard bands are 0 per cent up to £125,000 and 2 per cent from £125,001 to £250,000.

For a £210,000 purchase as an additional property, the first £125,000 is charged at 5 per cent, which is £6,250, and the remaining £85,000 is charged at 7 per cent, which is £5,950. The total is £12,200. A buyer with no other property would pay only £1,700 on the same price.

Scotland and Wales have their own taxes with different rates. Check the rules for the nation where the property sits. Using the English example, add legal fees of about £1,500 and the total cost of acquiring the property becomes £210,000 plus £12,200 plus £1,500, which is £223,700.

Yield on total cost and return on your cash

Net yield on the total cost is £9,180 divided by £223,700, which is 4.10 per cent. That is a more honest measure of what the property earns on the money tied up in it.

Now add a mortgage. Say you borrow 60 per cent of the price, £126,000, on an interest-only buy-to-let mortgage at 5.5 per cent. The interest is £6,930 a year. Cash left after costs and interest is £9,180 minus £6,930, which is £2,250 a year before tax.

The cash you put in is the deposit of £84,000, the stamp duty of £12,200 and the fees of £1,500, a total of £97,700. The cash return is £2,250 divided by £97,700, which is 2.30 per cent a year. That is a thin margin, and a rise in the mortgage rate of one percentage point (£1,260 a year on this loan) would cut it by more than half.

What the yield does not show

Tax is a large item. Rental profit is taxed as income at your usual rates. For individual landlords, mortgage interest is not deducted from rental profit. Instead, the tax is reduced by a credit worth 20 per cent of the interest, so higher-rate taxpayers are worse off than the cost of interest alone would suggest. Landlords should check GOV.UK or take advice on their own position.

The price can rise or fall. A gain in value may be a larger part of your return than the rent, and a fall can wipe out years of income. Yield tells you nothing about this. Capital gains tax may be due when you sell.

Time and risk matter too. Voids and arrears, problems with tenants, rule changes such as new standards for energy efficiency or tenancy law, and the work of managing the property all affect the real return. A yield that looks healthy on paper can be disappointing in practice.

Using yield to compare properties

Always compare like with like: gross yield with gross yield, net with net. A listing that says 7 per cent yield is almost certainly gross. Rebuild the net figure using your own costs.

Higher yields are often found in areas with cheaper prices, which can come with higher risk, more turnover of tenants and slower price growth. Lower yields are common in expensive areas where capital growth has been stronger. Neither is better by itself.

Set a minimum return before you start looking, and test the numbers with a higher mortgage rate and with a month or two of void. If a property still works under those conditions, it has some margin for error.

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