Rental Yield Explained: What to Include, What to Ignore, and How to Calculate Your True ROI

What is rental yield?

Rental yield is the annual return a property generates from rent, expressed as a percentage of the property’s value or purchase price. It is the most commonly quoted metric in property investing, and it is also the most commonly misunderstood.

The problem is that “rental yield” can mean very different things depending on who is quoting it and what they have included in their calculation. An estate agent advertising “8% yield” and an experienced investor calculating their actual return on a deal may be looking at completely different numbers.

Understanding the difference matters. It is the difference between thinking you have a great deal and actually having one.

Gross yield: the headline number

Gross yield is the simplest calculation. It takes the annual rental income and divides it by the property price.

Gross Yield = (Annual Rent / Property Price) x 100

For example, if a property costs £150,000 and rents for £750 per month:

• Annual rent: £750 x 12 = £9,000
• Gross yield: £9,000 / £150,000 x 100 = 6%

This is the figure you will see on most property listings, investment brochures, and sourcing deals. It is useful as a quick comparison tool, but it tells you almost nothing about the actual return you will receive.

Gross yield ignores every cost involved in owning and managing a property. It is a starting point, not an answer.

What does gross yield typically include?

In most cases, gross yield includes only two things:

1. The purchase price of the property (sometimes the asking price, sometimes the agreed price)
2. The monthly rent multiplied by twelve

It does not include stamp duty, legal fees, survey costs, mortgage arrangement fees, refurbishment costs, letting agent fees, insurance, maintenance, void periods, or any other expense. It is a raw, unfiltered number.

This is why two properties with the same gross yield can produce wildly different actual returns. A property yielding 7% gross in an area with high maintenance costs, frequent voids, and expensive management may perform worse than a property yielding 5.5% gross in an area with reliable tenants and minimal upkeep.

Net yield: a more honest picture

Net yield accounts for the ongoing costs of owning the property. It takes the annual rent, subtracts your annual expenses, and divides by the property price.

Net Yield = ((Annual Rent - Annual Expenses) / Property Price) x 100

Expenses to include in a net yield calculation:

• Letting agent fees (typically 8-15% of rent, depending on the level of management)
• Insurance (landlord building and contents insurance)
• Maintenance and repairs (a common rule of thumb is 10% of annual rent, though this varies)
• Void periods (the time the property sits empty between tenants, typically budgeted at 4-8 weeks per year depending on area)
• Ground rent and service charges (for leasehold properties)
• Gas safety certificates, EPC renewals, electrical checks (legally required and recurring)
• Accountancy fees (if you use an accountant for your property tax return)

Using the same example as before, if the property costs £150,000, rents for £750 per month, and your annual expenses total £3,200:

• Annual rent: £9,000
• Annual expenses: £3,200
• Net annual income: £5,800
• Net yield: £5,800 / £150,000 x 100 = 3.87%

That 6% gross just became 3.87% net. This is a much more realistic picture of what the property actually puts in your pocket each year from rental income alone.

Should you include stamp duty in the yield calculation?

This is a question that divides investors, and the answer depends on what you are trying to measure.

The case for excluding stamp duty

Some investors exclude stamp duty from their yield calculation because they view it as a one-off transaction cost rather than part of the property’s value. The property is worth what it is worth regardless of what you paid in tax to acquire it. If you are comparing yields across different properties, using the purchase price alone keeps the comparison cleaner.

The case for including stamp duty (and all acquisition costs)

Other investors, and this is increasingly the more common approach among serious portfolio builders, include stamp duty and all acquisition costs in their calculation. The logic is simple: stamp duty is money you had to spend to acquire the asset. It came out of your pocket. If you want to know your true return on the total cash you deployed, you need to include it.

For a £150,000 buy-to-let property, the stamp duty (at the additional property rate) would be approximately £6,000. Add legal fees of around £1,500 and a survey at £400, and your total acquisition cost is closer to £157,900.

Using total cost instead of just the purchase price:

• Net yield: £5,800 / £157,900 x 100 = 3.67%

The difference between 3.87% and 3.67% might not seem significant on one property, but across a portfolio of ten or twenty properties, these small differences compound.

What I would recommend

If you are evaluating whether to buy a property, include everything. Use the total amount of money you will actually spend. This gives you the most honest picture of your return and allows you to genuinely compare it against other investments.

If you are tracking ongoing portfolio performance year over year, using the property’s current market value as the denominator makes more sense, since the acquisition costs are sunk.

The metric that actually matters: ROI on cash invested

Here is where most property investment analysis falls short. Yield, whether gross or net, measures return against the property’s total value. But most investors do not buy properties with 100% cash. They use mortgages.

If you buy a £150,000 property with a 75% LTV mortgage, you are putting in £37,500 of your own money (plus acquisition costs). The property still generates the same £5,800 of net income, but your cash invested is far less than £150,000.

ROI on Cash Invested = (Net Annual Income / Total Cash Invested) x 100

Let’s work through a realistic example:

• Purchase price: £150,000
• Mortgage (75% LTV): £112,500
• Deposit: £37,500
• Stamp duty: £6,000
• Legal fees: £1,500
• Survey: £400
• Total cash invested: £45,400
• Annual rent: £9,000
• Annual expenses (including mortgage interest at 5%): £3,200 + £5,625 = £8,825
• Net annual cash flow: £175
• ROI on cash invested: £175 / £45,400 x 100 = 0.39%

That does not look great, does it? And this is the reality for many straightforward buy-to-let deals in the current interest rate environment. The gross yield said 6%. The net yield said 3.87%. The actual return on your cash is 0.39%.

This is why experienced investors focus on ROI on cash invested rather than yield. It is the only metric that tells you what your money is actually doing for you.

ROI on cash invested for BRRR deals

This is where the BRRR strategy (Buy, Refurbish, Refinance, Rent) transforms the numbers.

In a BRRR deal, you buy a property below market value, refurbish it, refinance based on the new higher value, and pull most (or all) of your cash back out. The amount of cash left in the deal after refinancing is what you measure your ROI against.

Here is an example:

• Purchase price: £100,000
• Refurbishment: £25,000
• Total cash in: £125,000 (plus acquisition costs, say £130,000 total)
• After-refurb value: £175,000
• Refinance at 75% LTV: £131,250 released
• Cash left in the deal: £0 (you’ve actually pulled out £1,250 more than you put in)
• Monthly rent: £850
• Annual rent: £10,200
• Annual expenses (including mortgage interest): £9,000
• Net annual cash flow: £1,200

If you have zero cash left in the deal (or have pulled cash out), your ROI is technically infinite. You are generating £1,200 per year from a property that has none of your money tied up in it.

Even if you leave some cash in, say £10,000, the ROI calculation looks very different:

• ROI on cash invested: £1,200 / £10,000 x 100 = 12%

Compare that 12% to what your money would earn in a savings account or an index fund. That is the comparison that actually matters, and it is the comparison you can only make when you calculate ROI on the cash you have genuinely left in the deal.

Why this matters for comparing investments

When someone asks “is property a good investment?”, the answer depends entirely on which metric you use.

If you look at gross yield and compare it to stock market returns, property often looks underwhelming. A 6% gross yield versus a historical average of 8-10% annual stock market returns seems like a poor choice.

But when you factor in leverage (the mortgage), the ability to force appreciation through refurbishment, and the true ROI on cash invested, the picture changes dramatically. A BRRR deal returning 12% or more on cash invested, with the added benefit of capital growth, rental income increases over time, and inflation eroding your debt, is a very different proposition.

The key is measuring the right thing. And the right thing to measure is always: what is my actual cash doing for me?

A practical approach to comparing deals

When you are browsing through property listings looking for your next investment, here is a practical framework:

1. Use gross yield as a quick filter. If a property’s gross yield is below your minimum threshold (many investors use 6-7% as a floor), move on. This saves time.

2. Calculate net yield for shortlisted properties. Factor in realistic expenses for that specific property and area. A property in an area with high voids needs a larger void allowance.

3. Model the ROI on cash invested. Work out how much of your own money goes in, what the mortgage costs are, and what your actual annual cash flow will be. This is the number that determines whether the deal works.

4. For BRRR deals, calculate ROI on cash left in. After refinancing, how much of your money is still tied up? What return does that trapped capital generate? This is your true comparable figure.

When you are assessing dozens of listings, tools like RightValue can help speed up that initial filtering process. Being able to quickly see sold prices and comparable data while browsing listings means you can identify which properties are worth running the full numbers on, without spending fifteen minutes checking sold prices manually for each one.

Common mistakes in yield calculations

Using asking price instead of purchase price

The yield based on asking price is meaningless until you have actually agreed a purchase price. Always calculate on the price you will actually pay.

Forgetting void periods

No property is rented 365 days a year, every year, forever. Budget for voids. Even in strong rental markets, tenant changeovers, refurbishment between tenancies, and the occasional longer void period will eat into your annual income.

Ignoring maintenance costs

New investors regularly underestimate maintenance. Boilers break, roofs leak, and appliances fail. Budget a realistic maintenance allowance, not the optimistic one.

Comparing gross yield to other investment returns

Comparing a 7% gross property yield to a 7% stock market return is comparing apples to oranges. One is a raw figure before all costs. The other is typically a total return after fees. Compare like with like, and that means using net yield or ROI on cash invested.

Not accounting for your time

If you self-manage your properties, your time has a value. A property that yields 1% more but requires hours of your time each month may not actually be a better investment than one with slightly lower yield but full management in place.

Getting your numbers right from the start

The difference between a good property deal and a mediocre one often comes down to accuracy in these calculations. A small error in your expense assumptions or a slightly optimistic rental estimate can turn a profitable deal into a break-even one.

Start with realistic numbers. Use actual comparable rents, not the highest figure on the street. Budget for real expenses, not best-case scenarios. And always, always calculate the metric that actually matters: what return are you getting on the cash you have put in?

RightValue gives property investors quick access to sold prices and comparable data while browsing listings. Try it free with 10 clicks every 24 hours.