Rental yield is an easy way to work out how much money you’re making from a rental property compared to its value. It’s expressed as a percentage and shows how well your investment is performing.
Taking the time to calculate rental yield can give you confidence that your purchase – whether paid for in cash or with a buy-to-let mortgage – is a solid investment.
It helps ensure your property not only brings in the income you want but also competes well with other investment options, like shares.
This figure is especially helpful for landlords investing to boost their retirement income, but it’s also an important way to track the performance of a portfolio focused on both capital growth and steady rental returns.
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OpenRent’s rental yield calculator
To make things even easier, we have created a free rental yield calculator designed specifically for landlords like you.
Just enter a few details about your property, such as the purchase price and expected rent, and our tool will quickly work out your rental yield.
It’s a simple, reliable way to check how your investment is performing and help you make informed decisions about buying or managing rental properties.
How it works
This calculator works out your gross rental yield in three simple steps:
- Multiply the monthly rent by 12 to find the annual rent.
- Divide the annual rent by the property value (market price, purchase price, or your offer).
- Multiply the result by 100 to get your rental yield as a percentage – your annual gross return.
Rental yield calculation example
Let’s say you’ve bought a one-bedroom flat in East London for £300,000, and the monthly rent you expect to receive is £1,200.
- Multiply the monthly rent by 12: £1,200 x 12 = £14,400
- Divide the annual rent by the property price: £14,400 ÷ £300,000 = 0.048
- Multiply by 100 to get a percentage: 0.048 x 100 = 4.8%
So, your rental yield in this case would be 4.8%, which is quite typical for London properties given the higher purchase prices.
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What is gross yield vs. net yield?
The rental yield shown in our example (4.8%) is the gross yield: the headline figure that gives a basic idea of your return. However, it doesn’t reflect the full picture because, as a landlord, you’ll have expenses like maintenance, insurance, and mortgage payments that reduce your actual profit.
When you subtract these costs from the gross yield (something our calculator can also help with), you get the net yield – a more accurate measure of how much you’re really earning from your rental property.
If you’re planning to buy a property with a buy-to-let mortgage and hope to use it for retirement income, your net yield will change over time. As you pay down your mortgage, your costs will reduce, which should improve your net yield year after year.
Here are the two formulas presented clearly:
Gross yield = (annual rent ÷ property price) × 100
Net yield = ((annual rent – annual costs) ÷ property price) × 100
Costs for property investors to consider
If you have a mortgage on your rental property, your net yield will be lower than your gross yield but mortgage payments aren’t the only costs to consider.
Here’s a quick guide to the main expenses you should include when working out your net yield:
Property value
If you already own the property, use the price you paid. If you’re looking to buy, do some research online to get an idea of the market value for similar properties. If you have an upper limit you’re willing to invest, you can use this at first while you assess rental income next.
Rental income
Seasoned investors will already know how much rental income they can expect. New investors, however, can again research the rental market in their local area. Use our rent calculator to find local market rents by postcode search. It uses UK-wide lettings data for a great assessment of the going rates.
Annual costs
Be realistic about ongoing expenses and don’t underestimate them, or your rental yield won’t be accurate.
- Mortgage payments: Multiply your monthly buy-to-let mortgage payment by 12 to find the yearly total. This includes interest-only payments or capital and interest repayments.
- Tax on rental income: As a private landlord, you’ll pay income tax on your rental profits.
- Safety certificates: You’ll need an annual gas safety certificate and heating servicing. Privately rented properties also require an Electrical Installation Condition Report (EICR), renewed every 5 years, and ideally, annual Portable Appliance Testing for appliances.
- Tenant searches and renewals: Tenants won’t stay forever – so it’s important to factor in the cost of finding new ones and renewing agreements, usually every couple of years. Take a look at our affordable packages, which offer great value compared to traditional high street letting agents.
- Repairs: While tenants handle minor upkeep, you must cover repairs to the building structure and replace worn furnishings. Many landlords budget around 10% of annual rent for these costs, which can add up quickly.
- Letting agent fees: Letting agents can be expensive, with some charging over 20% of your rent which can eat into your overall yield. OpenRent offers a much more affordable alternative, providing everything from property advertising to our premium tenancy creation service called Rent Now – all at a fraction of traditional agent fees.
Keeping all these costs in mind will help you get a clearer, more realistic picture of your property’s net rental yield.
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What about capital growth?
Capital growth refers to the increase in your property’s value over time. While prices can decline, UK property values have historically trended upward – often outpacing general inflation. That makes capital growth an important factor in the total return on your investment.
If you plan to sell your property after, say, 10 years of renting it out, it’s important to factor in that potential increase in value when considering your overall investment.
For example, if you expect your property to grow by £10,000 over that period, you can spread that gain across the years and add it, after any capital gains tax, to your projected annual income from rental yield.
However, it’s important to be cautious. Unlike rental income – which can be easier to forecast – capital appreciation is much harder to predict. Even experienced investors misjudge market cycles or local price movements.
So, the safest approach is to focus on your rental income as your main return and treat any capital growth as a welcome bonus rather than something to rely on.
What’s a good rental yield?
A strong rental yield typically falls between 5% and 6%, with anything above that considered excellent. That said, a yield below 5% isn’t necessarily a poor investment, as it really depends on your goals.
If your strategy focuses on long-term capital growth or retirement income, a lower yield today may still be worthwhile. For example, if you’re repaying a mortgage, your net yield might improve significantly as your borrowing costs decrease over time. And in cities like London, where yields often fall below 5%, the higher entry cost is often balanced by robust tenant demand and the potential for steady capital appreciation.
Two factors heavily influence your gross yield: the purchase price and the rent you can charge. You can influence both of these by seeking out a bargain and buying at a low price, or better still by widening the area you consider to purchase. Some regions offer higher yields simply because property prices are low relative to market rents.
Although sale prices and rents often move together, there are always spots where the latter stands relatively higher. These places tend to be the best options for landlords looking to get a strong rental yield on their investment.