Landlords guide
Rental Yield Explained: Gross, Net and Cash Flow
Gross rental yield is annual rent divided by the property purchase price, multiplied by 100 to give a percentage. For example, £1,000 monthly rent on a £240,000 property produces 5% gross yield. Net yield is lower once you subtract maintenance, insurance, management, voids and other operating costs; mortgage payments and income tax need separate cash-flow calculations.
Applies to: General investment modelling, not tax, investment or lending advice.
Gross yield is only the beginning
Gross rental yield is annual contractual rent divided by property purchase price, usually shown as a percentage. For example, rent of £1,200 per month on a £240,000 property produces £14,400 annual gross rent and a 6% gross yield. Gross yield ignores empty periods, repairs, fees, taxes and finance costs. Two properties with the same gross yield can have very different net results.
Net yield includes property running costs
Net yield uses income after allowance for vacancy and operating expenses. Typical items to budget for include management, maintenance, insurance, licensing or safety compliance, service charges and other routine costs. There is no single standard industry definition: check which expenses any advertised net-yield figure includes.
Practical checklist
- Estimate realistic void periods rather than 100% occupancy.
- Budget recurring property management and maintenance costs.
- Include service charge, insurance and compliance expenses.
- Separate one-off capital improvements from ongoing operating costs.
Cash flow and equity are different
Mortgage cash flow is what remains after paying borrowing costs. With a repayment mortgage, some of the payment reduces the loan balance: it is a cash outflow but not all an accounting expense. An interest-only mortgage usually creates a different monthly cash-flow profile, but the outstanding principal still has to be repaid or refinanced later. Stress-test interest rates, repairs and vacancy before deciding affordability.
Tax needs a separate calculation
For personally owned UK residential property, mortgage finance costs are subject to special income-tax relief rules rather than generally being deducted as ordinary expenses. Company ownership and personally owned property can produce substantially different tax and cash-extraction outcomes. The calculator offers indicative models only; it does not take into account a landlord's full allowances, losses or other income. From 2027/28, separate property income rates require additional care.
Practical checklist
- Keep documented records of rent and allowable expenses.
- Check the current HMRC position on mortgage finance-cost relief.
- Seek qualified advice before comparing personal and company ownership structures.
Check obligations before chasing returns
Regulatory duties depend on the property's location, tenancy and occupancy. Safety, repairs, deposit handling, energy performance and licensing can all affect cost and risk. Start with the official landlord guidance for your nation, and do not treat a high advertised yield as proof of a good investment.
What to read next
Continue with the most relevant next step, or explore the landlords journey.
References and further reading
These are the original legal, regulatory and professional sources used to inform this article. MMG explains the key steps above so you do not have to follow external links to find the answer. Circumstances and UK jurisdiction can affect the rules, especially for legal or financial decisions.
- GOV.UK: Renting out a property and landlord obligations(opens in a new tab)
- GOV.UK: Tax on rental property(opens in a new tab)
- GOV.UK: Residential landlord mortgage finance relief(opens in a new tab)
My Move Guide publishes general information, not personalised legal, tax, mortgage or financial advice. Estimates and requirements differ by location and circumstances.