Rental Yield Explained: How to Calculate It and Use It Wisely

What Is Rental Yield and Why Does It Matter?

If you’re buying a property to rent out, whether it’s a standard buy-to-let, HMO, holiday let, or commercial unit, rental yield is one of the first numbers you need to understand.

Put simply, rental yield tells you how much income your property generates each year as a percentage of its value. It helps you compare opportunities, assess risk, and decide whether a property is worth your investment.

Rental yield is especially useful when you're choosing between different investment strategies. A property that looks affordable on paper might not actually deliver strong returns and yield is how you find that out before committing.

How to Calculate Rental Yield (With Real Examples)

Rental yield is usually calculated in one of two ways: gross or net. Let's start with the basics:

Gross Rental Yield Formula:(Annual rental income ÷ Property value) × 100

Example: You buy a house in Leeds for £200,000 and rent it out for £1,200 per month.

• £1,200 × 12 = £14,400 annual income

• £14,400 ÷ £200,000 = 0.072

• 0.072 × 100 = 7.2% gross yield

That’s a strong figure — but it doesn’t include running costs, which is where net yield comes in.

Net Rental Yield Formula:((Annual rent – Annual costs) ÷ Property value) × 100

So, if your annual running costs (repairs, insurance, management fees, etc.) are £2,400, your net yield would be:

• £14,400 – £2,400 = £12,000

• £12,000 ÷ £200,000 = 0.06

• 0.06 × 100 = 6% net yield

We recommend looking at both figures, especially if you’re comparing two properties that need different levels of maintenance or management.

Gross vs Net Rental Yield: What’s the Difference?

Gross yield gives you a top-line view, it's quick and useful when comparing multiple properties. But it doesn’t account for the day-to-day costs of running the property.

Net yield is more accurate because it factors in your costs, things like maintenance, letting fees, service charges, and insurance. If you’re investing in an HMO, holiday let, or flat with service charges, net yield gives a much clearer picture of the property’s real performance.

Do Mortgage Payments Affect Rental Yield?

One of the most common questions we get is whether mortgage repayments should be factored into rental yield. The answer depends on how you're using the calculation.

Technically, mortgage repayments are not included in either gross or net rental yield.

That’s because yield is meant to compare the property’s income-generating potential, not your personal finance arrangement. Two people might buy the same house, one with cash, the other with a mortgage, but the rental yield remains the same.

That said, in the real world, most landlords are repaying a loan, so it's important to understand how those repayments affect your actual profit.

Let’s expand on our earlier example. Say you’ve bought a £200,000 property, charging £1,200 in monthly rent. That gives you a gross yield of 7.2% and, after £2,400 in annual costs, a net yield of 6%.

Now let’s say you’ve taken out a 75% LTV buy-to-let mortgage at 5.5% interest over 25 years. Your loan is £150,000. That gives a monthly mortgage payment of around £920, or £11,040 a year.

So your profit looks more like this:

• Rental income: £14,400

• Less running costs: £2,400

• Less mortgage: £11,040= £960 profit per year

Your yield may still look solid, but your cash flow is tight, only around £80 a month. In this scenario, your return on capital (i.e. what you're actually making from your investment after debt and expenses) becomes a more useful number than yield alone.

That’s why many investors use yield to identify opportunities, then run cash flow forecasts and ROI to decide if the deal really stacks up for their situation.

So, while yield is the first number you calculate, it’s never the last.

What’s Considered a Good Rental Yield in the UK?

There’s no one-size-fits-all answer. What counts as a good yield depends on your location, property type, and investment strategy.

In many parts of the UK, 4–6% gross yield is considered average for standard buy-to-lets. HMOs and student properties often achieve higher, 7% to 10% or more, though they typically come with more hands-on management.

In higher-value markets, like parts of London and the South East, yields may be lower, but investors often bank on stronger capital growth over time. (We'll cover this in more detail in our upcoming blog on capital appreciation.)

In Yorkshire, we still see solid rental yield opportunities in areas like Leeds, Wakefield, and Bradford, especially where there’s high tenant demand and prices remain relatively affordable.

How Rental Yield Helps Investors Make Smarter Decisions

Rental yield helps you strip out emotion and look at the numbers objectively.

Let’s say you’re comparing two properties: One costs £150,000 and earns £800/month.

The other costs £180,000 and earns £900/month.

Property two looks nicer, but property one has a higher gross yield and may offer a better return on your investment, especially if it's in a high-demand area with stable tenants.

We use yield to screen opportunities quickly, and then dig deeper into local demand, renovation potential, and resale value. If you'd like to do the same, our property investment page explains how we can help.

Rental Yields Across the UK: Regional Insights

Rental yield varies hugely across the country. Areas with lower property prices often deliver higher yields, but may also carry more risk in terms of tenant reliability or long-term value.

Some of the UK’s highest yields are in towns where prices are lower but rental demand is high, often due to local employment, universities, or regeneration schemes.

In Yorkshire, we’ve had success identifying strong-yield areas by combining local knowledge with data tools like the Zoopla rental yield guide and PropertyData.

Here’s a snapshot of rental yield performance across Leeds postcodes, based on current average asking prices and rents:

Source: PropertyData.co.uk, March 2025

How to Improve Your Rental Yield Without Cutting Corners

You don’t need to chase risky deals to improve your yield. Often, small improvements can boost rental value and long-term returns.

Refurbishing kitchens or bathrooms can increase your rental potential. Converting underused space into an extra lettable room is often viable in HMOs. Reviewing your rental model can also help, some properties earn more as holiday lets than they do on standard long-term tenancies.

Higher-quality homes attract better tenants and fewer voids, both of which protect your yield in the long run.

Final Thoughts: What Yield Means for You

Rental yield is one of the first numbers we look at when reviewing any potential property, but it's not the only one that matters.

If you’re actively searching for a high-yield property but need help finding the right deal, our property sourcing service is designed to support investors at every stage, from search to offer.

It's great for comparing opportunities and identifying where to focus your time. But when you're serious about buying, you also need to consider cash flow, capital appreciation, and your long-term goals.

Our next blog will explore capital appreciation, so you can understand how yield and growth work together and how to balance them for your portfolio.

If you’d like a second opinion on a property or just want to talk through your next move, we’d be happy to help. Get in touch to see how we can support you.

FAQs About Rental Yield

What is a good rental yield in the UK? Typically, 4–6% is considered average. HMOs or well-run holiday lets may achieve 7–10% or more.

Should I include mortgage payments in yield calculations? No — yield is about the property’s performance, not your finance. But you should calculate your cash flow separately, including mortgage repayments.

What’s the difference between gross and net rental yield? Gross yield excludes costs. Net yield includes expenses like maintenance and fees, offering a more accurate picture of return.

Can I use yield to compare buy-to-let with HMOs or holiday lets? Yes — just make sure you’re comparing net yields, as operating costs differ significantly across property types.

Is high rental yield always better? Not always. Very high yields can mean higher tenant turnover, maintenance, or location risk. Balance is key.