Rental Yield in Plain Words: A Guide for New Investors
Rental yield compares a year of rent with the price you paid. It lets you compare two very different properties on one scale.
The simple formula
Take the rent for a full year, subtract the yearly costs of holding the property, then divide by the total price you paid. Multiply by 100 to get a percentage.
Costs people forget
- Service charge, repairs and any months the flat stands empty
- Land tax and other yearly government charges
- Agent fees and the cost of finding a new tenant
Reading the result
- A high yield with heavy vacancy is worse than a modest yield with steady tenants
- Price growth is separate from yield. Some areas give more of one than the other.
- Compare with what a bank deposit would earn, and add the effort you put in
Work out yield with your real costs, not the best month you have ever had.
Rules, fees and processes change. Confirm current requirements with the relevant office or a lawyer before you act.
