How to Calculate Rental Yield: Gross vs Net Yield (UK 2026 Guide)
Rental yield is the single most useful number in buy-to-let — and one of the most commonly misunderstood. Two investors can look at the same property, quote wildly different yields, and both be technically correct, simply because one used the gross figure and the other worked out what they would actually keep. If you buy on the headline number without understanding what sits beneath it, you can end up with a property that looks like a strong income play on paper and barely breaks even in practice. This guide breaks down exactly how to calculate gross and net yield, what counts as a good return in 2026, and the costs most landlords forget to include.
What is rental yield? Rental yield is the annual rental income from a property expressed as a percentage of its value or purchase price. It measures the income return an investment property produces, separate from any capital growth, and lets investors compare properties of different prices on a like-for-like basis.
Gross rental yield: the quick number
Gross yield is the figure you will see quoted in listings and portal adverts. It ignores costs entirely, which makes it fast to calculate and useful for a first-pass screen — but flattering. The formula is simple:
Gross yield = (annual rent ÷ property price) × 100
Take a property priced at £200,000 that rents for £1,000 a month. Annual rent is £1,000 × 12 = £12,000. Divide by £200,000 and multiply by 100, and you get a 6% gross yield. That is your income return before a single cost is deducted.
Gross yield is genuinely useful for one thing: rapidly comparing lots of properties in the same market. If one flat yields 4% gross and another down the road yields 7%, you know where to focus your due diligence first. What gross yield will never tell you is whether the deal actually makes money.
Net rental yield: the number that matters
Net yield is gross yield after you strip out the cost of running the property. It is lower, less flattering, and far more honest — it is the return that lands in your account. The formula:
Net yield = ((annual rent − annual costs) ÷ property price) × 100
Using the same £200,000 property earning £12,000 a year, suppose your annual running costs total £4,000. Net income is £12,000 − £4,000 = £8,000. Divide by £200,000 and multiply by 100, and your net yield is 4% — a full two percentage points below the gross figure. That gap is the whole point: it is the difference between what a property earns and what you keep.
| Measure | Formula | Worked example (£200k property, £1,000/month) |
|---|---|---|
| Gross yield | (annual rent ÷ price) × 100 | (£12,000 ÷ £200,000) × 100 = 6.0% |
| Net yield | ((annual rent − costs) ÷ price) × 100 | ((£12,000 − £4,000) ÷ £200,000) × 100 = 4.0% |
The costs most landlords forget
The accuracy of your net yield depends entirely on being honest about costs. Optimists leave things out; the property does not. Here is what belongs in the running-cost figure for a typical buy-to-let:
- Letting and management fees — usually 8–12% of rent plus VAT if you use a managing agent.
- Void periods — budget for at least a few weeks a year with no rent; void losses have risen sharply in 2026, so do not assume 100% occupancy.
- Maintenance and repairs — a common rule of thumb is 1% of the property value a year, more for older stock.
- Landlord insurance — buildings, and often contents and rent guarantee cover.
- Service charges and ground rent — for leasehold flats these can quietly wreck a yield.
- Safety certificates and compliance — gas safety, EICR electrical checks, EPC, and licensing where required.
- Mortgage interest — if you include finance costs in net yield (see below).
Leave two or three of these out and a 4% net yield can flatter its way up to something that looks like 6%. That is precisely how landlords talk themselves into weak deals.
Average gross rental yields across UK cities have held in the region of 5–6% through 2026, but the spread is enormous — several northern cities deliver 7–9% gross while parts of London sit closer to 3–4%, according to Zoopla rental market data. The headline national average hides the deal. — Zoopla Rental Market Report, 2026
What is a good rental yield in 2026?
There is no universal threshold, but there are useful reference points. For a standard UK buy-to-let in 2026, a gross yield of 5–6% is solid, 7% or more is strong, and anything below 4% needs capital growth or a specific strategy to justify it. The table below is a working guide, not a rule:
| Gross yield | Verdict | Typical context |
|---|---|---|
| Below 4% | Weak on income | Prime London / South East — a capital-growth play |
| 4–5% | Moderate | Commuter towns, southern cities |
| 5–6% | Solid | Midlands, much of the North, average UK deal |
| 7–9% | Strong | Northern cities, university towns, some HMOs |
Higher yields almost always come with trade-offs — cheaper areas, more management, higher tenant turnover, or property types like HMOs that demand more work. A lower yield in a stronger-growth area is not automatically a worse investment; it is a different bet. The right target depends on whether you are buying primarily for income now or appreciation later. For a data-led view of where the numbers land, our guide to the best UK cities for buy-to-let in 2026 ranks locations on exactly this basis.
Yield is not the whole story
Two things regularly trip up investors who fixate on yield alone.
- Yield ignores capital growth. A 4% yield in an area appreciating 5% a year can beat a 7% yield somewhere flat. Total return is yield plus capital growth minus costs — judge deals on the full picture, not one half of it.
- Yield ignores leverage. Rental yield measures the property's return, not your return on the cash you put in. If you use a mortgage, cash-on-cash return — annual net profit divided by the cash you actually invested — often tells you far more about how hard your money is working.
This is why serious investors run every purchase through a proper deal analysis rather than stopping at the yield quoted in the advert. Yield is the starting point of the conversation, not the end of it.
How to calculate rental yield step by step
- Find the annual rent. Take a realistic monthly rent — check comparable listings, not the agent's optimistic figure — and multiply by 12.
- Confirm the price. Use the actual purchase price, not the asking price, so the yield reflects what you really paid.
- Calculate gross yield. Divide annual rent by price and multiply by 100.
- List every running cost. Management, voids, maintenance, insurance, service charges, compliance and, if you choose, mortgage interest.
- Calculate net yield. Subtract total costs from annual rent, divide by price, multiply by 100.
- Stress-test it. Rerun the numbers with a longer void and higher rates to see whether the deal still stands up.
Key takeaways
- Gross yield = (annual rent ÷ price) × 100 — quick, useful for screening, but ignores every cost.
- Net yield subtracts running costs and is the number that reflects what you actually keep, typically 1–3 points below gross.
- 5–6% gross is solid in 2026, 7%+ is strong, and sub-4% needs capital growth to justify it.
- Include every cost — voids, management, maintenance and compliance are where optimistic yields go to die.
- Yield is not total return. Weigh it against capital growth and, if you borrow, cash-on-cash return before you commit.
Run the numbers before you fall in love with a property, not after. Model your next purchase — gross yield, net yield and the full cost stack — with our rental yield calculator and deal analyser, and stress-test it against a realistic void and a higher mortgage rate before you offer. The deals that survive that scrutiny are the ones worth chasing.