Net Rental Yield Calculator: The Exact Formula Landlords Use to Screen Properties
Gross yield is a starting point, not a decision metric. Here is the complete net yield formula — with every cost category, worked examples from three markets, and the threshold numbers that separate cash-flow-positive from cash-flow-negative.
The most common mistake new property investors make is confusing gross rental yield with the actual return. Gross yield is a screener — nothing more. The number that determines whether a property makes or loses money is net yield, which accounts for every cost between the rent being paid and the money reaching your bank account. Here is the exact formula, broken down by cost category.
Gross yield: the starting point
Gross yield = (Annual rent ÷ Purchase price) × 100
A flat bought for £200,000 renting for £1,200/month generates £14,400/year in gross rent: gross yield of 7.2%. This is the figure you see on listing portals and agent appraisals. It is useful only for initial screening — comparing two properties or two markets at a glance. It tells you nothing about actual cash flow.
Net yield: the decision metric
Net yield = ((Annual rent − Annual costs) ÷ Purchase price) × 100
Annual costs fall into five categories:
1. Mortgage interest
For leveraged investors, this is usually the largest cost. An interest-only buy-to-let mortgage at 5% on a £150,000 loan costs £7,500/year. At 75% LTV on a £200,000 property, mortgage interest alone consumes 52% of the £14,400 gross rent.
2. Management fees
A letting agent typically charges 8–15% of gross rent for full management. On £14,400/year, that is £1,152–£2,160. Even if you self-manage, account for your time at some opportunity cost.
3. Void periods
Industry data suggests the average UK residential tenancy void period is 3–4 weeks per year. Conservatively budget 6 weeks (approximately 11% vacancy rate): £14,400 × 11% = £1,584 in lost rent.
4. Repairs and maintenance
Standard underwriting assumption: 10% of gross rent per year for maintenance, small repairs, and appliance replacements. On an older property, budget higher. £14,400 × 10% = £1,440.
5. Fixed costs
Landlord insurance (£200–£500/year), gas and electrical safety certificates (£150–£300/year), letting agent renewal fees (£100–£300), ground rent and service charge (varies widely for leasehold). Conservatively £600/year.
The worked example
Property: £200,000 purchase price. Monthly rent: £1,200. Gross yield: 7.2%. 75% LTV mortgage at 5% interest-only.
| Item | Annual cost |
|---|---|
| Gross rent | +£14,400 |
| Mortgage interest (£150k @ 5%) | −£7,500 |
| Management fee (10%) | −£1,440 |
| Void allowance (6 weeks) | −£1,384 |
| Maintenance (10%) | −£1,440 |
| Fixed costs | −£600 |
| Net income | +£2,036 |
Net yield on £200,000 purchase price: 1.02%. This is still cash-flow positive — but barely. It demonstrates why gross yield of 7.2% tells you almost nothing about actual returns when leverage is involved.
Cross-market comparison
Running the same framework across three markets (assuming similar 75% LTV @ 5% mortgage cost, expressed as % of purchase price):
- Dubai (JVC): Gross yield 8%, no property tax, self-management feasible. Net yield after mortgage, management, maintenance: ~3.5–4%. But: no capital gains tax on exit and AED is USD-pegged. The net yield advantage over UK is real.
- UK (Manchester): Gross yield 6%, income tax on profit, stamp duty on purchase. Net yield ~1–2%. The capital-growth thesis has to do more of the work.
- US (Charlotte NC, cash purchase): Gross yield 7%, no mortgage cost, property tax ~1.2% of value/year. Net yield ~4.5% cash-on-cash. Strong when leveraged at today's US mortgage rates, the picture changes.
What threshold to require
There is no universal answer, but a disciplined framework:
- Cash buyers: Minimum net yield of 4% — below this, you should consider whether the capital growth thesis alone justifies the illiquidity premium over liquid assets.
- Leveraged buyers (75% LTV): Minimum net yield of 2% — this ensures you are not subsidising the investment from your salary every month, and have buffer for rate rises or void spikes.
- The stress test: Run the numbers with rent 10% lower and mortgage rate 1% higher. If the property is still at least slightly cash-flow positive, it is resilient.
Use our Opportunities feed to see properties where our engine estimates gross yield — and apply this net yield framework before proceeding to due diligence.