What is Rental Yield?
Rental yield is the annual rental income expressed as a percentage of the property's value. It is a key metric in comparing the rental returns of different investment properties and part of calculating return on investment (ROI). Our rental yield calculator lets you input your estimated values and calculates both the gross and net yields. It should not be considered investment advice nor be used to calculate rent.
Understanding Gross vs. Net Rental Yield
Gross rental yield is the percentage of yield before expenses. This is what most estate agents use when advertising properties. Net rental yield considers purchasing costs and ongoing expenses like insurance, maintenance, and management fees. As a result, net rental yield provides a more comprehensive and realistic view of the property's value as an investment.
What makes a good yield?
What constitutes a good rental yield percentage depends largely on the property's risk profile. This typically includes location risks, other local development, prevailing market conditions, shifting demand, and your own goals. The higher the risk, the better the return needs to be to compensate. Additionally, consider long-term capital appreciation potential, the wider economic environment, and the amount of work a property will be when considering the rental yield's suitability. It is a more practical tool for comparing options as opposed to trying to calculate real-world returns.
A gross rental yield of around 5% or higher for conventional residential properties is considered good for well-established and stable markets like Loughborough. For higher risk/management-intensive options like student properties, a return closer to 10% is considered good.