What is a good rental yield? Gross vs net, and the numbers that matter

"What's the yield?" is the first question any experienced landlord asks about a property. Yield is the headline measure of how well a rental earns relative to its price, but the single word hides two very different numbers, and knowing which one you're looking at is the difference between a good decision and an expensive one.

Gross yield: the quick screen

Gross yield is the simplest measure: annual rent divided by the property price, as a percentage.

Gross yield = (annual rent ÷ property price) × 100

A £250,000 flat let at £1,200 a month earns £14,400 a year, so its gross yield is 5.8%. It's a useful first filter for comparing properties, but it ignores every cost of actually being a landlord, so it always flatters the deal.

Net yield: the honest number

Net yield subtracts the running costs before dividing by the price:

Net yield = ((annual rent − running costs) ÷ property price) × 100

Running costs include letting and management fees, maintenance, insurance, and an allowance for void periods when the property sits empty. On that same flat, costs of around £3,000 a year bring the net yield down to roughly 4.6%. Net yield is the figure to judge a property on, because it reflects what you actually keep before mortgage and tax.

So what's a good yield?

As a rough guide for the UK:

• Below 4%: you're relying on capital growth rather than income.
• 5–6%: typical for a solid buy-to-let.
• 7% and above: strong, and more common in the North of England than in London and the South East, where high prices push yields down.

There's a trade-off: high-yield areas often have slower price growth, while low-yield areas have historically delivered more capital appreciation. Neither is automatically "better". It depends on whether you're investing for monthly income or long-term growth.

Why cashflow and ROI matter more

Yield measures the property; it doesn't tell you how your money is doing. Because most buy-to-lets are mortgaged, the number that often matters most is cash-on-cash return: your annual profit after the mortgage, divided by the actual cash you invested (deposit plus purchase costs). A modest 5% yield can still produce a healthy return on the cash you put in, thanks to leverage.

Don't forget tax

Yield and cashflow figures are usually quoted before tax. Individual landlords can no longer deduct mortgage interest as an expense (Section 24) and instead receive a 20% tax credit, which can turn an apparently profitable higher-rate let into a thin one. Many investors now buy through a limited company, where profit is taxed via Corporation Tax instead. It's worth modelling your own position with an accountant.

For a worked example of how Section 24 can turn a small profit into a loss, and every other cost to budget for, see buy-to-let costs: what a rental property really costs.

Common mistakes

Judging a property on gross yield alone. It ignores every cost, so always look at net yield and monthly cashflow.

Underestimating voids and maintenance. Budget for at least a few weeks empty a year and ongoing repairs; ignoring them makes every deal look better than it is.

Chasing yield into the wrong area. A high headline yield in a low-demand location can mean long voids and difficult tenants that wipe out the paper return.