What is rental yield?
Rental yield is how much you could expect to receive in rent each year from your investment. This is usually expressed as a percentage and reflects the rental income against the property’s market value.
A higher rental yield may be more enticing, but there are other factors to consider. You’ll need to think about whether there would be void periods, finding tenants, tenant demographics, and if there is scope for capital appreciation.
High yields tend to be in locations with more demand and pressure on the rental market versus demand and pressure on buyers wanting to purchase property due to affordability.
How do you calculate rental yield?
There are two types: gross rental yield & net rental yield.
Gross rental yield measures the rental income against the purchase price of the property. Your net rental yield is what you’re left with after deducting expenses.
There is a 3rd type we like to use and that’s net ROI which is your net annual rental income against the total capital invested including costs.
Gross rental yield: annual rental income divided by the purchase price then multiplied by 100.
Net rental yield: annual rental income (minus costs like mortgage, insurance, maintenance, management) divided by the purchase price and multiplied by 100.
Net ROI: annual net rental income divided by total capital invested (deposit & purchase costs) and multiplied by 100.
What is a good rental yield?
As of 2024, the average yield in the UK is between 5%-8%.
Some parts of the country can deliver significantly higher or lower yields to others. You may find lower rental yields in areas where house prices are highest and similarly, you may find higher rental yields in areas where house prices are lowest. Striking a balance in our view is key.
Maximising your rental yield requires landlords to spend money to make it. Tenant requirements have adapted and to achieve premium rent you should consider well-designed, well-insulated, and stand-out amenities to not only attract and retain tenants but to warrant an increase over time.
