Rental Yield and Monthly Profit Explained (UK)

What rental yield actually measures

Rental yield is the annual rent a property earns shown as a percentage of what the property cost. It answers one question: how hard is your money working? Gross yield uses rent alone. Net yield strips out running costs first, so it is the number that actually reflects what you keep.

Most landlords quote gross yield because it is the bigger, friendlier figure. It is fine for comparing properties at a glance, but it tells you nothing about profit. Two flats with an identical 7% gross yield can leave one landlord with a healthy surplus and the other underwater once the mortgage, the agent and the boiler are paid. Yield, profit and growth are three different things, and confusing them is how people talk themselves into a bad purchase.

This post gives you the formulas, a full worked UK example, and the costs that quietly eat the gap between gross and net.

Gross yield vs net yield: the formulas

Gross yield is annual rent divided by property cost. Net yield is annual rent minus annual running costs, divided by property cost. Gross is for quick comparison. Net is for decisions. Always know both, and never let an agent quote you a gross figure as if it were profit.

Here are the two formulas in plain form.

Gross yield

Gross yield = (annual rent / total property cost) x 100

Net yield

Net yield = ((annual rent - annual running costs) / total property cost) x 100

A few things to get right:

• Total property cost should include the purchase price plus the money it took to make the place lettable: Stamp Duty, legal fees, and any refurb. Using purchase price alone flatters the number.
• Running costs in the net formula are the real, recurring outgoings (covered in detail below). It does not usually include the mortgage capital repayment, because that is buying you equity, not a cost. Mortgage interest, though, is very much a cost.
• Annual rent is rent actually collected, not the asking rent. If the place sits empty for a month, that month is a void, and it belongs in the calculation.

For a sense check on the national picture, the average UK gross buy to let rental yield was 7.18% in the final quarter of 2025, up from 6.99% a year earlier, according to UK Finance. That is a gross figure across all new lending, so treat it as a benchmark, not a target.

A fully worked UK example

Take a £200,000 two bed terrace let at £1,000 a month. Gross yield is 6%. But once you add the costs of buying it and the costs of running it, the net yield falls to roughly 3.4%, and real monthly profit after an interest only mortgage lands near £180. The gap between 6% and 3.4% is the whole point.

Here is the full breakdown. Assume a 75% loan to value interest only mortgage at 5%, which is in line with the 4.77% average buy to let rate UK Finance reported for late 2025.

On these figures the property is mildly cashflow negative before tax, even though the headline yield looked respectable. That is not a freak result. It is what a 75% mortgage does to a 6% gross property when rates are near 5%.

Now the yield numbers from the same example:

• Gross yield: £12,000 / £200,000 = 6.0%
• Net yield (before mortgage): £7,150 / £200,000 = 3.6%
• Net yield on total cost: include, say, £10,000 of Stamp Duty plus £3,000 fees, so £7,150 / £213,000 = 3.4%

Change two inputs and the picture flips. Put 40% down instead of 25%, and the interest bill drops to about £4,800, turning the deal cashflow positive. Buy the same property in a higher yielding region at a 9% gross, and even the leveraged version pays. This is why the same strategy works in one postcode and fails in another.

Yield vs cashflow vs capital growth

These three are not the same and they do not move together. Yield measures return relative to price. Cashflow is the actual cash left in your account each month after every bill including the mortgage. Capital growth is the property rising in value over time. A property can have strong yield and weak growth, or the reverse, and a high yield can still produce negative cashflow.

Think of them as three separate scoreboards:

• Yield is a comparison metric. It lets you line up two properties and see which uses your capital harder, before financing.
• Cashflow is survival. Negative cashflow means you are topping the property up from your own pocket every month. That can be fine if you have chosen it deliberately for growth, and dangerous if it has crept up on you.
• Capital growth is the long game and is largely outside your control. It is real wealth, but you cannot spend it until you sell or refinance, and it is never guaranteed.

Higher yielding areas (typically the North of England, Scotland and Wales) tend to deliver more monthly cash and slower price growth. Lower yielding areas (much of the South East) have historically leaned on capital growth instead. Neither is right or wrong; they are different bets. If cashflow is what keeps you solvent, our guide to rent vs mortgage cashflow digs into the monthly maths in more detail. If you are buying, refurbishing and refinancing to recycle your deposit, the BRRR strategy explained shows how growth and yield interact in that model.

What counts as a good yield

There is no single "good" yield, because it depends on the area, the property type and your strategy. As a rough working rule, many UK landlords look for net yields above 5% to clear costs comfortably with a mortgage, and treat gross yields below 4% as growth plays rather than income plays. Regional averages vary widely, so always compare like for like.

What actually makes a yield "good" for you:

• It clears your costs with margin. A yield that only breaks even leaves nothing for a new boiler or a rate rise.
• It survives a stress test. Rerun your numbers with rates two points higher and a two month void. If it still works, the yield is genuinely good.
• It matches your goal. Chasing income? Prioritise net yield and cashflow. Chasing wealth? You can accept a lower yield for a stronger growth area, as long as you can fund the shortfall.

Be sceptical of headline gross yields in adverts. They almost always ignore voids, management and maintenance, which are exactly the costs that decide whether a deal is real.

The running costs landlords forget

The costs that wreck a yield calculation are the irregular ones. Voids, maintenance, insurance, agent fees and tax rarely show up in a quick sum, yet together they routinely take 25% to 35% of gross rent. Budget for them up front and your net yield will not surprise you later.

The usual suspects:

• Voids. Empty months between tenancies. One void month is roughly 8% of annual rent gone. Budget for at least a few weeks a year even in a strong area.
• Maintenance and repairs. A common planning figure is around 1% of the property value a year, more on older stock. Boilers, roofs and white goods do not warn you.
• Letting agent fees. Full management is typically 10% to 15% of rent plus VAT, with extra charges for tenant find, renewals and inspections. Self managing saves this but costs time. Our self managing landlord workflow covers doing it without an agent.
• Insurance. Specialist landlord (not standard home) buildings insurance, and contents if you let furnished.
• Compliance. Annual gas safety, EICR every five years, EPC, smoke and CO alarms, deposit protection. These are legal, not optional.
• Tax. This is the big one people misjudge. Since the finance cost rules changed, individual landlords can no longer deduct mortgage interest from rental income. Instead you pay tax on the rent and receive a tax credit worth only the basic rate (20%) of your interest, according to GOV.UK. For higher rate taxpayers this can turn an apparent profit into a loss, so model it before you buy.

The practical fix is to track every cost against every property as it happens, not reconstruct it at year end from a shoebox of receipts. A spreadsheet works until you have more than one or two properties; after that, a tool like Build & Let keeps rent, mortgage and monthly profit per property in one place so your real net yield is always in front of you, not a guess.

Frequently asked questions

Is gross or net yield more important?

Net yield matters more for decisions because it reflects what you actually keep after running costs. Gross yield is fine for a quick comparison between properties, but it ignores voids, maintenance, insurance and management. Never judge a purchase on gross yield alone; always work the net figure before committing.

Does rental yield include the mortgage?

Standard net yield excludes the mortgage, so you can compare properties independently of how each is financed. Cashflow is the figure that includes mortgage interest. Mortgage capital repayments are not a cost (they build equity), but interest is a real expense and must be in your monthly profit and cashflow sums.

What is a good rental yield in the UK?

There is no universal figure, but many landlords aim for a net yield above 5% to cover costs comfortably once mortgaged. Gross yields vary sharply by region, with the North, Scotland and Wales generally higher and the South East lower. The right target depends on whether you want income or capital growth.

How do I calculate monthly profit on a rental?

Take the monthly rent, then subtract every monthly outgoing: mortgage interest, a void allowance, letting agent fees, maintenance, insurance and annualised compliance costs. What remains is pre tax profit. Then model the tax separately, since mortgage interest now only earns a basic rate tax credit rather than a full deduction.

Why does a high yield sometimes still lose money?

Because gross yield ignores the mortgage and running costs. A 7% gross property bought at 75% loan to value when rates are near 5% can be cashflow negative once interest, voids and management are paid. A high yield only protects you if it survives a realistic stress test on rates, voids and tax.

Run your numbers, then watch them

Yield is only as honest as the costs you put into it. The landlords who stay profitable are the ones who track real rent, real mortgage and real running costs per property, then check their net yield against reality every month. If you would rather see monthly profit per property update itself instead of rebuilding a spreadsheet every quarter, Build & Let gives you a free 14 day trial (card required, cancel anytime) to keep your whole portfolio's rent, mortgage and profit in one workspace.