Headline figures on property deals usually show gross yield. But once costs are taken into account, tempting returns can shrink to small rewards. Here's how to calculate your bottom line
Gross yield gets quoted everywhere in property investment. Net yield is what actually matters. If you are evaluating a buy-to-let acquisition and working from gross yield alone, you are missing the numbers that determine whether the investment performs or disappoints.
This guide explains the difference between gross and net yield, walks through the calculation, and provides a practical framework for stress-testing any property deal before you make an offer.
Gross yield is simply based on the income a property generates and the price you paid for it. It is calculated as:
Gross Yield = (Annual Rent / Purchase Price) x 100
Example: A property purchased for £200,000 generating £12,000 annual rent has a gross yield of (12,000/200,000) x 100 = 6%.
Gross yield is a useful starting point for comparing deals at speed — it normalises income against capital invested. But it ignores every cost of ownership.
Net yield deducts costs from the rental income before calculating the return:
Net Yield = [(Annual Rent – Annual Costs) / Purchase Price] x 100
Net yield is what you actually earn on your capital. It is the metric that should drive acquisition decisions.
The costs that reduce gross yield will vary by investor and property, but a comprehensive calculation should include:
| Cost Category | Typical Range | Notes |
|---|---|---|
| Mortgage interest | Varies by LTV and rate | Use current BTL mortgage rates. Higher-rate taxpayers limited to 20% tax credit (Section 24) |
| Letting agent management | 8–12% of annual rent | Varies by location. Self-management reduces this to zero |
| Maintenance/repairs | 1–1.5% of property value per annum | Budget higher for older properties. Cannot be predicted precisely |
| Insurance (buildings + contents) | £250-£600 pa | Specialist BTL insurance required |
| Landlord licensing (if applicable) | Varies by local authority | Selective and additional licensing fees apply in some areas |
| Safety certificate renewal | £80-£200 pa | GSC: annual renewal; EICR: every 5 years |
| Void allowance | 2-4 weeks equivalent pa | Model a realistic void to stress-test cash flow |
| Accountancy/professional fees | £200-£600 pa | Tax returns, advice on structure |
Consider a tenanted property offered at £220,000 with annual rent of £13,200 (£1,100 per month):
Now remove:
That example illustrates an important principle: a 6% gross yield with a high-LTV mortgage produces very thin net returns in the current rate environment. Run the same numbers with no mortgage:
The mortgage structure is the single largest variable in net yield for leveraged investors. Section 24’s restriction on mortgage interest relief further compresses after-tax returns for higher-rate taxpayers.
Every LP Exchange property listing includes pre-populated yield data based on the seller’s tenancy and agreed price. Use the calculator to verify and adjust for your specific cost assumptions.
There is no universal answer — yield acceptability depends on your investment objectives, gearing level, and portfolio strategy. As a general framework for unleveraged investors:
For leveraged investors, the calculation is more complex — the interaction of mortgage rates, Section 24, and base costs means that gross yield targets of 7%–8% are typically required to generate meaningful after-tax net cash flow at 65–75% LTV in the current environment.
