Question 1

Whats the formula for gross rental yield?

Accepted Answer

Gross yield = (Monthly rent x 12) / Property value x 100. For example a £1,200/month rent on a £240,000 property gives £14,400/£240,000 = 6% gross yield. Net yield deducts running costs such as management fees, maintenance, insurance, and void periods before dividing by property value.

Question 2

What counts as a good rental yield in the UK?

Accepted Answer

A gross yield of 6-8% is generally considered healthy; anything above 8% often indicates higher-risk areas or HMO strategies. London typically yields 3-5% gross with capital growth as the main return, while parts of the North East and North West regularly yield 8-10%+ but with slower price appreciation.

Question 3

Does rental yield include capital growth?

Accepted Answer

No. Yield measures income return only. Total return combines yield with capital growth (or loss), minus ownership costs. A 5% yield with 3% annual price growth produces an 8% gross total return, but this ignores transaction costs, tax, and leverage effects that materially change the picture for a mortgaged landlord.

Question 4

Should I use property value or purchase price for yield calculations?

Accepted Answer

Use current market value for ongoing performance monitoring, and original purchase price (plus purchase costs) for return-on-investment analysis. Yields expressed against historic purchase prices tend to look healthier over time but mask the opportunity cost of the equity tied up at todays value.

Question 5

How do HMOs affect rental yield calculations?

Accepted Answer

Houses in Multiple Occupation typically achieve 10-15% gross yield by renting rooms individually, versus 5-7% for a standard single let of the same property. HMOs carry higher running costs (bills often included, higher void risk, stricter regulation, Article 4 restrictions in many councils) so net yield differential is smaller than gross.

Question 6

Are yields affected by leasehold vs freehold?

Accepted Answer

Yes. Leasehold flats incur ground rent (where still payable under pre-2022 leases) and service charges of £1,500-£5,000+ per year that reduce net yield. Shorter leases (under 80 years) also materially impair resale value and mortgageability, so these costs should be deducted when comparing leasehold with freehold houses.

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