Investment Insights › Guide
Understanding gross rental yield
A simple headline measure, and why it is only the start of assessing a property.
General information, not advice. This guide is not legal, tax or financial advice, and does not predict any property's income.
The formula
Gross rental yield (%) = annual rent ÷ purchase price × 100
It shows the yearly rent as a percentage of the price paid, before any costs. Because it is quick to calculate, it is widely used to compare properties at a glance.
Gross versus net
Net yield subtracts running costs from the rent first, so it is usually lower than gross. Gross yield deliberately leaves things out, which means a high gross figure does not tell you what you will keep.
Costs gross yield ignores
- Mortgage interest and finance fees
- Letting and management fees
- Maintenance, repairs and furnishing
- Void periods (empty weeks between tenants)
- Insurance, including landlord and buildings cover
- Service charge and ground rent on leasehold property
- Licensing and compliance costs, such as safety certificates
- Purchase costs, including Stamp Duty Land Tax and legal fees
- Refurbishment costs
- Tax, which depends on your own circumstances
Take tax advice on how income and costs are treated for you.
Worked example
Worked example only. This is not a real property, not market evidence and not a prediction of rent, yield or any other result. The figures are round numbers chosen to show the arithmetic.
| Item | Example figure |
|---|---|
| Purchase price | £100,000 |
| Estimated legal, survey and other purchase costs (excluding Stamp Duty Land Tax) | £3,000 |
| Estimated refurbishment cost | £10,000 |
| Total estimated outlay (excluding Stamp Duty Land Tax) | £113,000 |
| Monthly rent (assumed) | £600 |
| Annual rent (£600 × 12) | £7,200 |
| Gross yield on purchase price (£7,200 ÷ £100,000 × 100) | 7.2% |
| Same rent as a percentage of total outlay (£7,200 ÷ £113,000 × 100) | about 6.4% |
Assumptions: the property is let for all 12 months at the same rent.
Exclusions: Stamp Duty Land Tax, which can be significant when buying an additional property (check the current rates on gov.uk), mortgage costs, management, repairs, voids, insurance, compliance, tax and any other running costs. These would reduce the net figure, so the net yield would be lower than both percentages above.
The example shows why the denominator matters. If you add acquisition and refurbishment costs, the same rent produces a lower percentage.
Three more worked examples
Worked examples only. None of these is a real property, a real deal, market evidence or a prediction of rent, yield or any other result. The figures are round numbers chosen to show the arithmetic for different strategies. Real rents, costs and yields vary widely.
| Buy-to-let | HMO | Refurbishment | |
|---|---|---|---|
| Purchase price | £100,000 | £170,000 | £90,000 |
| Estimated legal, survey and other purchase costs (excluding SDLT) | £3,000 | £4,000 | £3,000 |
| Estimated refurbishment cost | £0 | £20,000 | £30,000 |
| Total estimated outlay (excluding SDLT) | £103,000 | £194,000 | £123,000 |
| Assumed monthly rent | £600 | £1,680 (4 rooms at £420) | £650 (after works) |
| Annual rent (monthly × 12) | £7,200 | £20,160 | £7,800 |
| Gross yield on purchase price | 7.2% | about 11.9% | about 8.7% |
| Same rent as a percentage of total outlay | about 7.0% | about 10.4% | about 6.3% |
Assumptions: each property is let for all 12 months at the stated rent. In the HMO column, rent is the total for four rooms. In the refurbishment column, the rent applies only once the works are complete, so there would be no rent during the works.
Exclusions: Stamp Duty Land Tax, mortgage costs, management, repairs, voids, insurance, bills (which are often included in HMO rents), licensing and compliance costs, tax and any other running costs. These would reduce the net figure, so the net yield would be lower than the percentages shown. Refurbishment costs can also exceed estimates.
A higher percentage is not automatically better. It can reflect higher costs, more management, tougher regulation or more risk. Always test your own assumptions.
How to compare properties sensibly
- Use the same formula. Check whether an advertised yield uses the purchase price or the total outlay.
- Check the rent is realistic. Look at current evidence for similar homes in the same street or area rather than a hoped-for figure.
- Compare like with like. A shared house, a flat and a family home carry different costs and risks.
- Build in costs and voids. Calculate a net figure with your own assumptions and test it with higher costs and lower rent.
- Consider more than yield. Condition, tenant demand, regulation, finance terms and your own goals all matter. A high yield may reflect higher risk or higher costs.
Common pitfalls
- Treating a quoted yield as guaranteed income
- Using asking rents instead of achieved rents
- Forgetting that a mortgage changes the cash position
- Comparing percentages across properties with very different costs
Independent accountants, mortgage advisers and solicitors can help you apply this to a real purchase.
Sources
Accessed 14 November 2026. Yield is a standard arithmetic definition and the example uses example numbers only; no market statistics are quoted. For costs mentioned:
- GOV.UK, Stamp Duty Land Tax: https://www.gov.uk/stamp-duty-land-tax
- GOV.UK, Renting out your property: https://www.gov.uk/renting-out-a-property
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