Gross yield = annual rent ÷ purchase price. It ignores all costs. Net yield = (annual rent minus all running costs) ÷ purchase price. Running costs typically reduce gross yield by 1.5–2.5 percentage points — a 7% gross yield becomes approximately 4.5–5.5% net. For a mortgaged landlord there is a third figure: cash yield, which also deducts mortgage interest to show actual pre-tax cash flow. Estate agents always quote gross because it is the highest number. Investors should always calculate net and cash yield before making any purchase decision.
The three rental yield figures every landlord needs to know
The headline number. Ignores all running costs. Used in property listings and quick comparisons. Useful for screening properties but tells you nothing about actual returns.
Deducts agent fees, maintenance, insurance, voids, and other running costs. Tells you the income return after operating expenses — but before financing costs.
Deducts both running costs and mortgage interest. Shows the actual pre-tax cash position for a mortgaged landlord. Can be negative even at a 6% gross yield.
Three-way yield calculator — gross, net, and cash in one
The formulas in full — one property, three calculations
Using a single worked example throughout makes the relationship between the three figures concrete. The property: a two-bed terraced house in Leeds purchased for £190,000, renting at £925/month.
Gross yield = £11,100 ÷ £190,000 × 100 = 5.84%
This is the number an estate agent or property listing would quote.
Maintenance (1% of value): £1,900
Landlord insurance: £270
Void provision (1 month): £925
Accountancy and licensing: £200
Total running costs: £4,627
Net income = £11,100 − £4,627 = £6,473
Net yield = £6,473 ÷ £190,000 × 100 = 3.41%
Cash income = £6,473 − £7,268 = −£795
Cash yield = −£795 ÷ £190,000 × 100 = −0.42%
Monthly cash flow (before Section 24 tax) = −£66/month
The same property has a gross yield of 5.84%, a net yield of 3.41%, and generates a monthly loss of £66 for a mortgaged basic-rate landlord. This compression — from 5.84% to −0.42% — illustrates why gross yield alone is meaningless for investment decision-making. A buyer who relies on the 5.84% headline figure and does not model costs will discover the loss after completing the purchase.
Every cost that reduces gross yield — the complete list
| Cost item | Typical amount | Included in net yield? | Notes |
|---|---|---|---|
| Letting agent management fee | 10–15% of rent inc. VAT | Yes | On £900/month = £108–£162/month. Largest recurring cost for managed properties. |
| Maintenance and repairs | 1–1.5% of property value/year | Yes | On £185k = £1,850–£2,775/year on average. Lumpy — minor years, then major works. |
| Landlord buildings insurance | £200–£500/year | Yes | Required. Contents insurance optional but recommended for furnished lets. |
| Void period provision | 4–8% of annual rent | Yes | 1 month void on £900/month = £900 per year as a provision even if fully occupied. |
| Letting agent letting fee (tenant find) | 1–2 weeks rent per tenancy | Yes | Charged each time a new tenant is found. Spread over average tenancy length. |
| Accountancy fees | £300–£800/year | Yes | Recommended for all landlords with complex income or multiple properties. |
| Landlord licensing | £50–£500/year | Yes | Selective licensing in some councils (e.g. Nottingham, Liverpool). HMO licensing is significant. |
| Service charge (leasehold only) | £800–£4,000+/year | Yes | Flats only. Highly variable — check three years of service charge accounts before buying. |
| Ground rent (leasehold, pre-2022) | £0–£500/year | Yes | New leases from 2022: peppercorn ground rent. Older leases: variable, can be significant. |
| EPC improvements (amortised) | Variable | Yes | Minimum EPC C may be required for future letting. Cost spread over ownership period. |
| Mortgage interest | Loan × rate | No — cash yield only | Treated as financing cost. Included in cash yield calculation; not in standard net yield. |
| Stamp duty (purchase) | 5% surcharge + SDLT | No | One-off acquisition cost. Sometimes amortised over expected holding period for ROI calcs. |
| Mortgage arrangement fee | £0–£1,499 | No | One-off. Sometimes added to mortgage or amortised over deal period. |
Net yield deducts all "Yes" items from annual rent before dividing by purchase price. Cash yield additionally deducts mortgage interest. One-off acquisition costs (stamp duty, arrangement fee) are typically excluded from yield calculations but should be factored into overall return on investment (ROI) analysis.
Gross-to-net gap by property type — why it varies
The gap between gross and net yield is not the same for every property type. Higher management requirements, leasehold costs, and HMO licensing create larger gaps on some property types than others. The three examples below use properties at similar gross yields to show how net yield differs by type.
| Purchase price | £185,000 |
| Monthly rent | £980 |
| Gross yield | 6.35% |
| Agent (12% + VAT) | £1,411 |
| Maintenance (1.2%) | £2,220 |
| Insurance | £280 |
| Voids (1mo) | £980 |
| Total costs | £4,891 |
| Net yield | 4.00% |
| Purchase price | £280,000 |
| Monthly rent | £1,480 |
| Gross yield | 6.34% |
| Agent (12% + VAT) | £2,131 |
| Maintenance (incl. in SC) | £500 |
| Service charge | £2,200 |
| Ground rent | £250 |
| Insurance (in SC) | £0 |
| Voids (1mo) | £1,480 |
| Total costs | £6,561 |
| Net yield | 2.55% |
| Purchase price | £295,000 |
| Monthly rent (5 rooms × £550) | £2,750 |
| Gross yield | 11.19% |
| Agent (12% + bills) | £4,538 |
| Bills (landlord-paid) | £4,200 |
| Maintenance (2%) | £5,900 |
| HMO licence | £800 |
| Insurance (HMO) | £650 |
| Voids (higher turnover) | £2,200 |
| Total costs | £18,288 |
| Net yield | 5.70% |
The leasehold flat in Bristol has almost the same gross yield as the Leeds terrace (6.34% vs 6.35%) but a drastically lower net yield (2.55% vs 4.00%) — entirely due to the service charge and ground rent. The HMO's enormous gross yield of 11.19% compresses to 5.70% net once bills, HMO licensing, higher maintenance, and increased void allowance are included. Gross yield comparison between property types is almost meaningless without the costs context.
Why estate agents always quote gross yield — and what to do about it
The practice of quoting gross yield in property listings and investment pitches is entirely rational from a marketing perspective: it is the highest possible number. A property with a 7% gross yield that nets 4.5% after costs will be listed as "7% yield" — not "4.5% net yield."
This is not technically dishonest — gross yield is a recognised metric. But it is selectively presented. The costs that reduce gross to net are real, unavoidable, and often larger than first-time investors expect. The void provision alone — a single month of empty property per year — reduces gross yield by approximately 0.5–0.7% on a typical property.
Red flags in how yield is presented
- "Guaranteed yields" advertised by new-build developers — these are typically gross figures funded by an inflated purchase price, not genuine market rental income. When the guarantee period ends, the yield often drops significantly.
- Yields calculated on purchase price before stamp duty — if you pay £210,000 for a property with a 5% stamp duty surcharge, your actual capital deployed is £220,500, not £210,000. Calculate yield on total funds deployed, not just the purchase price.
- Yields on off-plan properties based on projected rather than achieved rent — actual market rent in two years may be different from the developer's projection today.
- Net yields quoted without disclosing all cost assumptions — always ask what costs are included in a net yield figure. Some presentations exclude maintenance, others exclude voids, producing a net yield that still significantly overstates actual returns.
Frequently asked questions
-
What is the difference between gross and net rental yield?Gross yield = annual rent ÷ purchase price × 100. It ignores all costs. Net yield deducts all running costs — agent fees, maintenance, insurance, voids, service charges — before dividing by the purchase price. Running costs typically reduce gross yield by 1.5–2.5 percentage points. A 7% gross yield typically becomes 4.5–5.5% net, and then further reduces to a 0.5–1.5% cash yield after mortgage interest for a mortgaged landlord.
-
How do I calculate net rental yield?Net rental yield = (Annual rent − Annual running costs) ÷ Purchase price × 100. Annual running costs typically include: letting agent fees (10–15% of rent), maintenance (1–1.5% of property value), landlord insurance, void provision (4–8% of annual rent), service charge if leasehold, accountancy, and licensing. Add all these costs together, subtract from annual rent, then divide by the purchase price and multiply by 100. Use the three-way calculator above for instant results.
-
Why is my net yield much lower than the gross yield I was quoted?Because gross yield ignores all costs. The gap between gross and net is typically 1.5–2.5 percentage points on a standard single-let freehold property, and larger on leasehold flats (service charges, ground rent) and HMOs (bills, licensing, higher maintenance). A property listed at 7% gross yield typically nets 4.5–5.5% after running costs. Always calculate net yield yourself using the actual costs for the specific property rather than relying on an agent's gross figure.
-
Should I use gross or net yield to compare properties?Always use net yield for investment decisions — gross yield is only useful for very quick screening to eliminate obviously low-yield options from a shortlist. Once you have a shortlist, model the net yield on each property using realistic cost assumptions for that specific property type and location. Two properties with identical gross yields can have dramatically different net yields depending on whether they are freehold or leasehold, managed or self-managed, and new-build or older stock requiring higher maintenance.
-
How much does the void period reduce rental yield?A single month's void per year reduces annual rent by approximately 8.3% — on a property renting at £950/month, that is £950 of lost rent. On a £190,000 property, this alone reduces gross yield by approximately 0.50 percentage points. Most landlord financial models use a void provision of one to two months per year as a conservative assumption, even if the property is usually fully occupied. Unfurnished properties in high-demand areas typically have lower void rates; student lets with fixed academic-year tenancies can have predictable voids in the summer.
Related calculators and guides
About the author
✓ Editorially reviewed — all Poqet guides are checked for factual accuracy before publication and updated when UK rates or legislation change. Editorial Policy