Understanding rental yield
Gross tells you where to look. Net tells you whether to buy. This lesson is the difference between the two.
The calculation, and the input that breaks it
Gross yield is annual rent divided by purchase price, times one hundred. A property bought for 150,000 pounds renting at 800 pounds a month produces 9,600 pounds a year, a 6.4% gross yield. The formula is trivial; the input that breaks it is the rent. Listings overstate what a property achieves, so anchor on rents actually agreed for comparable properties, and if you are uncertain, haircut the advertised figure by 5% to 10% before you run any numbers.
Price has its own trap: use the total money in, not just the purchase price, when you compare your own deals. Stamp duty, fees and initial works all dilute the true yield on cash deployed.
From gross to net: where the rent goes
Net yield subtracts the running of the property: management, maintenance, insurance, compliance certificates, service charges on leasehold stock, and an honest allowance for void weeks. We itemise every line with current ranges in running costs and void periods; the short version is that 25% to 35% of gross rent disappears before the mortgage is paid.
The same deal, both ways
150,000 pound purchase, 800 pounds a month. Gross: 6.4%. Now subtract 10% management (960), maintenance at 0.75% of value (1,125), insurance (250), certificates (150) and three void weeks (550). Running costs total about 3,035 pounds, leaving 6,565 pounds. Net yield: 4.4%.
Two percentage points vanished without anything going wrong. That is the normal shape, and it is why two deals at the same gross yield can sit a full point apart on net once one has a service charge and the other does not.
What counts as a good yield
| Strategy | Typical gross | Typical net |
|---|---|---|
| Single let, higher-yield cities | 6.5% to 8% | 4.5% to 5.5% |
| Single let, growth-led areas | 4.5% to 6% | 3% to 4% |
| HMO and co-living | 9% to 12% | 6% to 8% |
| Short-let hybrid | Occupancy dependent | Highly variable |
Indicative planning ranges, not promises. HMO figures assume licensing and management intensity are priced in.
The right benchmark is the one your strategy needs. A cash flow investor should refuse anything that nets below their mortgage stress margin; a growth investor can accept 4% net in an area with genuine rerating drivers. What no one should accept is a yield that only works in the listing's arithmetic. The lender applies its own version of this test, covered in buy-to-let mortgages explained: if rent does not cover 125% to 145% of stressed interest, the yield is too thin to leverage regardless of how it looks on paper.
Benchmark locally, not nationally
Three rules for honest comparisons
- Compare a deal against its own postcode district, not a national average; a 6% yield is strong in one city and weak three miles away.
- Compare like stock with like: a two-bed terrace yield says nothing about a city-centre flat with a service charge.
- Watch the direction as well as the level: rents rising into flat prices push yields up, which is the setup income investors want to buy into.
Local benchmarking is mostly assembly work: sold prices from the Land Registry against achieved rents, area by area. The Clarity Investment Map keeps that comparison current across 977 UK areas, refreshed monthly, so the question becomes which strong-yield areas fit your budget rather than what the yield even is.
Sources and further reading
Written by the Clarity Property Investments research team. Last reviewed 12 June 2026. This article is general information, not financial or tax advice.