Understanding rental yield can help you establish what return you can expect from a buy-to-let investment. It can also be helpful when it comes time to review the rent on said investment.
When you know the rental yield of a property, you’re better placed to understand if it is the right place for your investment objectives, or if you could earn a higher rental yield with a different property or by investing in a different area.
In this article, we’ll explain what rental yield is and how you calculate it.
What is rental yield
Essentially, rental yield is the amount of money you make on an investment property by measuring the gap between your overall costs and the income you receive from renting out your property.
How to calculate rental yield
1. Take your property’s annual rental income
2. Take your property’s purchase price, or current market value
3. Divide the annual rental income by the price / value
4. Multiply the figure you get by 100 to give you the yield percentage
For example, you purchase a flat for £130,000. If you charge £800 a month in rent, the total annual rental income would be £9,600 (assuming that the property had tenants for the full 12 months). This would give you a rental yield of 7.4% (£9,600 divided by £130,000 is 0.0738).
What is a good rental yield?
As a general rule, a yield between 5% - 8% is considered to be a good return, but different parts of the country can produce significantly higher or lower returns.
It is worth bearing in mind that yields can be lower in areas where the expected house price growth is highest, such as in London. This is because the potential for capital gains in the region pushes sale prices up, while rent levels are less affected.
Rental yields across the UK
As property prices and average rents differ across each town, city and region in the UK, rental yields will vary.
To give you an idea of the latest rental yields across the UK, you can take a look at Rightmove's latest quarterly Rental Trends Tracker (Q1 2023) which monitors property rental prices around the country.
If you're searching for a buy-to-let property, take a look at latest listings here, which include both vacant and tenanted properties.
You can also give our team a call on 0141 339 4466 for help with your property search.
