The formulas
Gross yield = annual rent ÷ purchase price × 100. Annual rent is the monthly rent times twelve, before any costs or vacancy.
Net yield = (annual rent × occupancy − annual running costs) ÷ (purchase price + purchase costs) × 100. Occupancy is one minus the vacancy you expect; running costs include management fees, insurance, maintenance, service charges, ground rent, and any licence fees. Purchase costs are taxes and fees paid to buy — stamp duty or transfer tax, legal fees, survey.
A worked example
A flat bought for 250,000 with 12,000 of purchase costs rents for 1,250 a month. Gross yield is 15,000 ÷ 250,000 = 6.0%. Allow 5% vacancy and 3,200 of annual running costs, and net income is 15,000 × 0.95 − 3,200 = 11,050, giving a net yield of 11,050 ÷ 262,000 = 4.2%.
A 1.8-point gap between gross and net is typical for a managed long-term let. For a holiday let the gap is usually wider, because cleaning, platform commission, and a higher management fee all sit in running costs — the property management fee calculator can help estimate that last line.
What yield does not tell you
Yield ignores mortgage costs, capital growth, and tax, so it is a comparison metric rather than a measure of profit. Two properties with the same net yield can produce very different cash flow once financing is included.
Once a property is let, the useful numbers come from what it actually earned rather than what you projected. Reports in The Property Tool track income, expenses, and occupancy per property, which turns a projected yield into a measured one — especially useful for investors tracking several properties.
Common questions
What is a good rental yield?
It depends heavily on location and property type. Higher-priced city areas often yield less on paper than cheaper regional towns. Compare a property against similar ones in the same area rather than against a single national benchmark.
What is the difference between gross and net yield?
Gross yield uses annual rent and purchase price only. Net yield subtracts vacancy and running costs from the rent and adds purchase costs to the price, so it reflects what the property actually returns before financing and tax.
Should I include mortgage payments in running costs?
No. Yield is measured independent of how the purchase is financed. Look at cash flow or return on equity separately if you want to include the mortgage.
Does this work for holiday lets and Airbnbs?
Yes. Enter the average monthly booking revenue across the year as the rent, and put your realistic vacancy and the higher running costs of short-term letting into the other fields.
Done by hand once. Done automatically from now on.
Measure each property’s real income, costs, and occupancy instead of projecting them.