Guide
What is a good rental yield?
Rental yield is the annual rent as a percentage of the property's value. There's no single "good" number (it varies a lot by area and strategy), but the figure that really decides a buy-to-let isn't the yield at all. It's the monthly cash flow once the mortgage is paid.
Gross yield vs net yield
Gross yield is the simplest headline: annual rent divided by the property price. A £250,000 home let for £1,200 a month earns £14,400 a year, a gross yield of about 5.8%. It's quick, but it ignores costs.
Net yield takes off the running costs (letting agent fees, maintenance, insurance and an allowance for void periods) but not the mortgage. It shows what the property earns before financing, and it's a fairer comparison between properties.
So what counts as good?
It depends heavily on where you buy and why. In London and much of the South, yields are often lower because buyers are partly betting on capital growth (the value rising over time). In parts of the North and the Midlands, yields tend to be higher but growth may be slower. A yield that looks strong in one town would be ordinary in another. The honest answer is that "good" is relative to the local market and your strategy: chase the yield in one place, the growth in another, and balance both where you can.
Why cash flow matters more
A property can show a healthy yield and still lose money every month once a mortgage is on it. Monthly cash flow is what actually lands in your account: rent, minus the mortgage, minus the running costs. If that number is negative, the property costs you money to hold, however good the yield looks on paper. This is the figure to lead with.
Cash-on-cash return
The other number worth knowing is cash-on-cash return: the yearly cash flow as a percentage of the actual cash you put in (deposit plus buying costs like stamp duty and legal fees). It tells you how hard your own money is working, which a yield based on the full property price can't.
Don't forget the tax
Since the Section 24 changes, higher-rate landlords can no longer deduct mortgage interest from rental income in the usual way. Instead, they get a basic-rate tax credit. For a higher-rate taxpayer with a large mortgage, this can turn a paper profit into a much thinner one, so it's worth modelling the after-tax position, not just the yield.
This is general information to help you weigh up a purchase, not tax or investment advice. Get figures specific to the property and your own tax position before you commit.
Run the numbers on a property
Our free rental yield calculator works out gross and net yield, monthly cash flow after the mortgage, and cash-on-cash return. Private to your device.