Becoming a landlord? Here’s everything you need to know about Rental Yield

Manchester Estate Agent Pad Residential discusses how potential landlords can calculate their rental yieldCalculating rental yield is one of the most important considerations when becoming a landlord. Knowing the potential rental yield of a property can help you to decide if the investment is worthwhile and can also help to support borrowing applications.

What is Rental Yield?

Put simply, rental yield is the amount of income you can achieve on a rental property as a percentage of the property’s value.

The figure is calculated by dividing annual rental income by value of the property.

Gross Yield v Net Yield 

There are two types of yield to be considered; gross yield and net yield.

Gross yield is everything before expenses, this figure is calculated based on a property’s value divided by annual income.

Net yield calculations include all expenses as well as ongoing costs such as rates, council tax and insurance fees. The acquisition costs are considered separately, these would include stamp duty, land tax and legal costs, etc

How to Calculate Gross Rental Yield

To calculate rental yield divide the property value by the annual rental income and times by 100.  For example:

Annual Rental Income: £6,000 (£500 a month)

Property Value: £150,000 £6,000 / £150,00 x 100 = 4%

Property Value: £150,000 £6,000 / £150,00 x 100 = 4%

What is a Good Rental Yield?

There’s lots of different advice about what makes a good rental yield, with suggestions ranging from 2% to more than 8%.

As a rule you need to ensure that the rental income covers the costs associated with the property and ideally allows you to save cash for future needs of the property, such as repairs.