How to calculate rental yields

Wed 31 Jan 2018

A rental yield shows the rental value of a property expressed as a percentage of the price it was purchased for. It's calculated by dividing your annual rental income by the purchase price and then multiplying the outcome by 100%. Therefore, a rental property purchased for £200,000 - which generates annual rent of £9,600 (£800 per month) - would have a yield of 4.8%.

This figure is known as a gross yield, but to get a better indication of how profitable your investment is going to be you will need to factor in a range of additional costs to calculate what is known as an 'actual yield'. 

Some of the costs you'll need to take into account are letting agent fees (if applicable), landlord insurance, ground rents (if applicable) and void periods. Indeed, the biggest hit to annual returns can come from rental voids - months when your property sits empty between tenants. This is why selected an agent with a strong track record of slim void periods is so important.  You may also wish to set aside a budget for potential maintenance spend.

Calculating potential rental yields can be a sound starting point when deciding whether a potential investment is a good idea or not. Being honest and detailed about associated costs is crucial as you’ll then have a figure which is a true indication of potential rather than one which seems too good to be true. 

There are plenty of rental yield calculators online - here's a simple to use one from This Is Money

If you would like advice on sourcing potentially attractive property investments, please do not hesitate to drop us a line on 01480 218200

"I have always found Lovetts to be very responsive to any concerns I have. The monthly statement and my rent are always produced on time and they send out an annual statement for tax purposes which is invaluable. Of the 4 letting agents I have used over the past 10 years Lovetts are by far the best!"
Ros George

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