Rental yield expresses rental income as a percentage of a property's price or value. It can help organise a comparison, but only when the calculation is clear about which income, costs and property figure it uses.
Calculate gross yield consistently
Gross yield is annual rent divided by the chosen property price or value, multiplied by 100. It does not deduct running costs. The Mortgage Works describes its rental-yield calculator as illustrative and notes that it does not show maintenance costs or capital gains.
For a purely illustrative example, annual rent of £12,000 divided by a £200,000 purchase price gives a gross yield of 6%. Those invented inputs demonstrate the arithmetic; they are not a forecast, a market average or an available investment.
Explain what net means
For an operating-yield comparison, subtract the running costs you have chosen to include from annual rental income, then divide by the stated denominator. Label the result clearly because different calculations may include different costs.
Using the same illustrative property, £3,000 of annual operating costs would leave £9,000. Dividing by £200,000 gives 4.5% before finance and tax. This deliberately simplified example excludes acquisition costs, capital works and changes in value.
Keep cash flow separate
Mortgage payments and tax can materially change the money left available. Prepare a separate cash-flow budget rather than assuming an operating-yield percentage is spendable profit. Show vacancy and repair assumptions explicitly and check financing terms with an appropriate adviser.
Compare assumptions, not just percentages
Ask whether rent is contracted, collected or merely advertised, and whether the denominator is purchase price, current value or total acquisition cost. Do not compare two percentages as equivalent when their inputs differ.
A high yield does not establish suitability or remove property and financing risk. This is an explanation of arithmetic, not a recommendation to invest.
Editorial review: 14 October 2026. This original Property Perpetuity guide replaces the imported text; the original archive publication date is retained.