If you’re an existing landlord, knowing the rental yield generated by your property, or portfolio, is key to understanding the return you’re getting on your investment. For new investors, rental yield is equally as important when buying a property to let, but can be difficult to understand. In this piece, we’ll explain what rental yield is and how you calculate it, before looking at some average yields across the UK…
What is rental yield?
Rental yield is the annual return you achieve from renting out a property.
Your property’s yield tells you the percentage return your rental income is generating against the property’s original purchase price.
How to calculate rental yield
To calculate your property’s rental yield:
1. Take your property’s annual rental income
2. Take your property’s purchase price, or current market value
3. Divide the annual rental income by the price / value
4. Multiply the figure you get by 100 to give you the yield percentage
For example, let’s say you’ve purchased a new rental property for £180,000 and you’re charging your tenant £800 per month (£9,600 per year) in rent.
This is how you’d calculate your yield:
• Divide 9,600 by 180,000 = 0.053
• 0.053 x 100 = 5.3% rental yield
What does gross rental yield mean?
Gross rental yield is calculated based on your property’s value against what it generates in rental income – and doesn’t factor in any costs associated with renting out a property, which might include:
• Letting agent fees
• Landlord insurance policies
To work out your net rental yield, deduct your costs from your annual rental income, then divide this figure by your property’s value and multiply by 100 to give you your net yield percentage
if you want to discuss in more detail, please do not hesitate to call the office to arrange a consultation.