As a landlord, you’re likely familiar with the concept of rental yield. Rental yield is the annual income generated by a property as a percentage of its value, and is a critical measure for assessing the performance of your property investment. In this blog post, we’ll explain what rental yield is, how to calculate it, and why it matters to investors. We’ll also offer tips for maximising rental yield, so you can get the most out of your rental property.

What is Rental Yield?

Rental yield is a measure of the income generated by a property as a percentage of its value. There are two main types of rental yield: 

• Gross yield is the total annual rental income divided by the property value, expressed as a percentage.
• Net yield is the annual rental income minus any expenses (such as property management fees or maintenance costs), divided by the property value, expressed as a percentage.

For example, if you have a property that’s worth £300,000 and generates £18,000 in annual rental income, your gross yield would be 6%. If your expenses for the year total £3,000, your net yield would be 5%.

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How to Calculate Rental Yield

Calculating rental yield is relatively straightforward. To calculate gross yield, divide the annual rental income by the property value, and then multiply by 100 to get the percentage. For net yield, subtract any expenses from the annual rental income before dividing by the property value. Here’s the formula:

Gross yield = (Annual rental income / Property value) x 100

Net yield = ((Annual rental income – Expenses) / Property value) x 100

If you’d like to make the calculation process even easier, we’ve developed a rental yield calculator that you can use. Simply input the relevant figures, and the calculator will do the rest.

It’s worth noting that rental yield can be influenced by various factors, such as rental income, property value, and expenses. If you want to maximise your rental yield, it’s important to keep these factors in mind.

Why Rental Yield Matters for Property Investment

Focusing on rental yield offers several benefits for property investors. For one, rental yield provides a more comprehensive measure of investment performance than relying solely on capital growth or rental income. By taking into account both the value of the property and the rental income it generates, rental yield offers a better indication of the return on investment.

Additionally, focusing on rental yield can help investors manage risk. Higher rental yields typically indicate a lower risk investment, as there’s a higher probability that the property will generate enough income to cover the mortgage and other expenses. By prioritising rental yield, investors can make more informed decisions about which properties to invest in and how much to invest.

To maximise rental yield, there are several tips you can follow. Firstly, location is critical. Choose a location with high demand for rental properties, such as near universities or major employers. Secondly, target the right tenants. Consider factors such as their age, income, and lifestyle when determining the rental price. Finally, minimise expenses. By keeping expenses low, you’ll be able to generate a higher rental yield. You can find our comprehensive guide on how to increase your rental yield here. 

Conclusion

Rental yield is a critical measure for assessing the performance of your property investment. By following our tips for focusing on and maximising your rental yield, you can get the most out of your rental property by generating higher returns and managing risk more effectively. 

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