Rental yield calculator
Yield measures what a property earns relative to what it costs — the cleanest way to compare two very different properties. Gross yield uses rent alone; net yield subtracts the running costs that quietly consume it.
Gross versus net, and why the gap matters
Answer first: gross yield is annual rent divided by property value. Net yield subtracts the costs of actually running the place — management, insurance, maintenance, void periods, ground rent and service charges on a flat.
Gross is the number quoted in listings because it flatters. Net is the number that describes your year. The gap between them is not small: service charges alone can turn an attractive gross yield into an ordinary net one, which is why a flat and a house showing the same gross figure can be very different investments.
What yield does not tell you
It deliberately ignores your mortgage. Yield measures the property, not the deal — which is exactly why it is useful for comparing properties, and useless on its own for deciding whether a purchase works.
For that you need the borrowing test: whether the rent covers the mortgage interest by the margin the lender requires, at a stressed rate. That is a separate calculation and it is the one that caps your loan — run it on the buy-to-let stress test calculator, and read the stress test explained for the mechanics.
Yield and the contractor investor
The useful part of buy-to-let for a contractor is that the loan rests mainly on the rent rather than on how you are paid — the day-rate assessment problem that dogs residential lending matters far less. Most lenders still want a minimum personal income, but as a threshold to clear rather than a multiplier.
That said, the structure you buy through changes the tax treatment materially, and therefore what a given yield is worth to you. SPV or personal name sets out the comparison — and it is a decision to take with an accountant, not from a yield figure.
Most buy-to-let mortgages are not regulated by the Financial Conduct Authority. The value of property and the income from it can fall as well as rise.
Rental yield, answered
What is a good rental yield?+
It depends entirely on the area and property type, and anyone quoting a single national figure is oversimplifying. Higher yields often come with higher risk, more management or slower capital growth, so yield is best used to compare properties in a similar market rather than as a target to hit.
Should I use gross or net yield?+
Use gross to shortlist quickly, net to decide. Gross is easy to compute and comparable across listings; net reflects what you actually keep once management, insurance, maintenance and any service charge are paid, which is the figure your year is built on.
Does yield include my mortgage?+
No, and that is deliberate. Yield describes the property's earning power independently of how you financed it, which is what makes it comparable. To test whether the borrowing works, use the interest coverage stress test instead.
What costs should I include in net yield?+
Letting or management fees, landlord insurance, a realistic maintenance allowance, and an allowance for void periods. On a flat, add the service charge and ground rent — these are frequently the difference between an attractive property and a mediocre one.