How to calculate rental yield

Are you looking into investing in property?

If you are, great! But, do you know what the rental yield is?

Rental yield is important as it is used to show the return on your investment (ROI).  There are two ways landlords make money through property letting; these are capital growth – this is the increase in your properties value over time and rental income – which is what your tenant pays you.  So, what is the rental yield on a property?

Calculating your gross rental yield

Gross rental yield is your return on investment before all the necessary outgoings. To work out this type of rental yield you need to calculate the following formula:

Yearly rental return / Investment x 100 = Gross rental yield %

For example, a £120,000 property that generates £12,000 per annum has a gross yield of 10%. If the property doubles in value over ten years (this is capital growth) and the rent increases to £24,000 per annum then the rental yield is 20% going by the original investment price.

Calculating your net rental yield

Net rental yield is, you guessed it, the return on your investment including all the necessary outgoings such as any of the following:

• Insurance premiums
• Replacing fixtures and fittings
• Maintenance
• Ground rent and service charge
• Allow for empty periods
• Letting agency fees
• Tax
• Mortgage repayments

To work out your net rental yield you need to calculate the following formula:

Yearly Rental income – Yearly Outgoings / Investment x 100 = Net rental yield %

Knowing what the rental yield for a property will help you assess its viability as an investment.

Are you looking for advice? We are a letting agency and property management company that has been in the industry for over 25 years. Please feel free to contact us on 01454 316718 or email enquiries@edisonfordproperty.co.uk, we’ll be happy to help.