Rental Yield Calculator
If you’re trying to work out the rental yield of a property you don’t yet own or aren’t yet letting to tenants, then you'll need to use estimated figures for your rental income and possibly the purchase price.
To do this, you may want to look at rent and purchase prices for similar properties in the same area as the property you're looking to buy. If you're entering expected or estimated figures then bear in mind that your rental yield may change.
This is a rental yield calculator and not a quotation under the Consumer Credit Act. All results are based on the figures input.
This calculator does not take into account any ongoing maintenance costs of the property. Mortgage approvals are also subject to validation of income, credit checks and a property valuation.
What Is Rental Yield?
A rental yield is the revenue you earn – or expect to earn – from an investment, expressed as a percentage of the property or asset value. Property investors and landlords use rental yield to measure the value of their investments as they want to know the return on their capital outlay.
What Is a Good Rental Yield Percentage?
There is no simple answer for what a good yield percentage is. This is because there are many variables that affect a possible rental yield. For example, property type or location will both have a huge impact on yield. As a general guide, most investors would consider anything over 5% as a good rental yield on the majority of properties.
However, you also need to consider weighing the rental yield against how much management a property requires. This is particularly the case with HMOs (houses of multiple occupation) or holiday lets, which often have a higher rental yield than average, but require more management. Properties with lower management needs typically have lower rental yields, but are easier to handle.
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How to Work Out Rental Yield
Working out the rental yield for a property is very easy to do. Simply divide your annual rental income by the property value and then multiply it by 100 to get your gross rental yield expressed as a percentage.
Or use our rental yield calculator above which will work out your gross rental yield for you.
What Is the Rental Yield Formula?
The formula for calculating rental yield is:
Annual rental income ÷ value of the property x 100 = rental yield
Example:
- Your monthly rental income is: £1,300
- Your annual rental income is: £1,300 x 12 = £15,600
- You purchased the property for £250,000
- Your rental yield is: (£15,600 ÷ £250,000) x 100 = 6.24%
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Why Calculate Your Rental Yield?
Calculating your rental yield is vital to help you understand whether or not a property investment is going to be worthwhile. Using a rent yield calculator can help make sure that the gross rental yield is high enough to cover expenses in managing and maintaining the property as well as giving you a sufficient return on your investment. It can also help you compare the rental yield of different investments, helping you decide which is more suitable for your needs.
Understanding Gross vs. Net Rental Yield
When looking at rental yield, there are 2 kinds to consider: gross rental yield and net rental yield.
- Gross rental yield: this measures the annual rental income as a percentage of the property's purchase price. It is calculated by dividing the annual rent by the property value and multiplying by 100. This figure doesn't account for expenses, giving a broad view of potential profitability. Our property yield calculator can help you easily see the gross yield of a property if you input the rent you get for the property
- Net rental yield: this gives a more accurate picture by factoring in costs such as maintenance, insurance, property management fees, and other expenses. It's calculated by subtracting annual expenses from the annual rent, then dividing by the property value and multiplying by 100
Examples
- Example 1: a 2 bedroom apartment in London costing £500,000 generates an annual rent of £24,000. Gross yield: 4.8%. After accounting for £6,000 in annual expenses (maintenance, management fees), net yield: 3.6%
- Example 2: a 3 bedroom house in Manchester purchased for £300,000 with an annual rent of £18,000. Gross yield: 6%. With £3,000 in expenses, net yield: 5%
What Do You Need to Consider When Calculating Net Rental Yield?
The factors you need to consider to calculate net rental yield are listed below.
Insurance Premiums
You'll need suitable insurance for your property to make sure that it’s protected in case of incidents. Assuming that you’re going to be taking out a mortgage for the rental property, you will be required to have property insurance. This is a requirement because mortgage lenders will not want the risk of property damage making their investment worthless. You might also want to have landlord insurance or contents insurance if you are letting a furnished property. If you pay your insurance premiums annually, you should divide this between the months in order to work out your monthly cost.
Replacing Broken Fixtures and Fittings
As a landlord, you have a duty to make sure the property is habitable and pleasant for your tenants, which includes keeping fixtures and fittings in good working order. Some expenses won't arise regularly, so you need to consider the average cost per month. You can do this by getting an estimate of how much it will cost to take care of the property you're planning to rent annually and dividing the yearly cost into a monthly estimate.
Maintenance
You also should consider maintenance that you’ll need to have carried out on the property. This includes plumbing, painting, and other repairs. Again, you should try to estimate this expense. You can do this by looking at local service providers. It's generally better to overestimate the cost of maintenance than underestimate it. Otherwise, an unexpectedly large maintenance bill could lower your net rental yield significantly.
Ground Rent
If the property you're intending to rent out is a leasehold property, you'll need to pay ground rent. This should also be factored into your rental yield calculations. Most flats, apartments and maisonettes are likely to be leasehold. If the rental is a freehold property, you won't have to pay ground rent.
Empty Periods
Whatever type of rental property you're investing in, you should consider the prospect of periods when the property is unoccupied. If you're letting out a standard buy-to-let, these periods may be quite short, but on occasions the dwelling could be empty for some time. Refurbishment may also be required at certain points, which may mean the property won’t be tenanted for several weeks or even months, and repairs or renovation may be required between tenants. For short-term rentals, you may have more empty periods. For example, with holiday rentals you might find that there are many empty periods during low seasons. This can significantly lower your net yield.
Agent Fees
If you intend to use an agent for any part of the letting process, you'll also need to consider agent fees. Depending on whether you're using an agent or a management company, they might have different types of fees that you should include in your calculations.
What Factors Affect Rental Yield?
There are many different factors that affect rental yield or the rent price you can charge for a property. These factors are worth considering when looking at potential rental yield.
- Location - rental yield is often lower in areas with high property prices, such as in popular urban areas. Yield can be higher in rural areas. However, this is often weighed against the capital appreciation that you could get with the property. Properties in urban areas often gain value faster than in rural areas
- Property type - Houses of Multiple Occupancy and holiday rentals can have higher rental yields compared to residential properties. However, these properties need more management due to the higher turnover of residents
- Housing market - the cost of properties and the market for rentals can have a huge effect on rental yields. This can vary in different areas within the same county or country
- Interest rates - interest rates significantly impact rental yield, particularly net yield. Higher interest rates increase mortgage payments, reducing net income from rental properties. This results in a lower net rental yield as more rental income is diverted to cover the higher mortgage costs. Conversely, lower interest rates reduce mortgage payments, enhancing net rental income and improving net rental yield. Investors must consider current and projected interest rates when calculating potential returns to ensure accurate financial planning and sustainability of their rental investments
How Can I Maximise Rental Yield?
If you're looking for investments, you'll likely want to look at how to get the highest rental yield from your properties.
Here are ways to maximise rental yield:
- Look at up and coming areas - areas with high property costs do not always provide the highest rental yield. You could look at areas with lower costs that are likely to become popular in the near future
- Keep your properties well-maintained - making sure properties are pleasant, have working facilities, and are up-to-date helps increase the rental, what you can charge and thus your yield
- Increase your renter pool - you might be able to increase rental interest by accepting renters with pets or renters who otherwise might struggle to find a tenancy
Want to Know More About BTLs?
We have also sorts of information to aid you on your journey to landlordship. Learn what it means to be a portfolio landlord, how to go about getting a mortgage for buy-to-let, what LTD company BTL mortgages are and more.
Rental Yield FAQs
Can You Guarantee Rental Yield?
You can never guarantee rental yield, since the market can change. However, you can see how likely you are to get your expected rental yield by looking at historical data for the area where you're planning to purchase a buy-to-let property.
Is a High Rental Yield Always Good?
A high rental yield is usually the aim of most landlords. However, you should weigh this against other factors, most importantly the amount of management a property will require. High yield rentals such as HMOs will often require more management than residential properties, which might not be ideal for your investment plan.
What Is the Difference Between Gross and Net Rental Yield?
The gross rental yield is the amount you'll get from renting before deductions for maintenance, fees, ground rent, or similar expenses. The net rental yield takes these expenses into account to give a more thorough overview of what you'll gain from your investment.
What’s the Difference Between Rental Yield and Capital Appreciation?
Rental yield is the amount that you get paid in rent from your tenants expressed as a percentage of the property's value. Capital appreciation is how much the property's value increases over time. Typically, properties with high capital appreciation have lower rental yields. This is because they're in popular areas where property prices are high and increase faster.
What Factors Influence Yield?
Some of the main factors that influence yield are the location of the property and the way you rent out the property - e.g. through a property management company instead of privately. The yield shown by our rental yield calculator (UK) is directly based on the price paid for the property, so you might also find that renovated properties offer a higher yield.
What Is the Average Rental Yield in the UK?
The average rental yield in the UK tends to be between 3% and 5%, though this varies between areas and different types of rental property. The yield calculator will show what yield percentage you could get from a property.
What Is a Reasonable Yield on a Rental Property?
Most investors aim to get a rental yield of around 5%. You should look at the average rental yield in your area for average rent costs and use our rent yield calculator to work out the yield percentage.
If you're looking for a mortgage on a buy-to-let property, we can help. Here at John Charcol, we have many expert brokers with years of experience in helping landlords arrange mortgages for BTL properties. Get in touch today to see how we can help.
How Do I Calculate Rental Yield for Renovated Properties?
Calculating rental yield for renovated properties involves a few additional steps:
- Determine renovation costs: sum all expenses incurred during renovation, including materials, labor and permits
- Calculate the increase in property value or rental income: estimate the new property value after renovations, ideally through a professional appraisal, and subtract the property's value before renovation. Or, subtract the old potential annual rent from the new annual rent to give you the increase in annual rental income
- Calculate gross yield using this formula: gross yield = (increase in annual rent/renovation cost) × 100
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