Open any property listing aimed at investors and you will see a yield figure. It looks precise. It is usually the most misleading number on the page. The problem is not that it is wrong, it is that it answers a different question from the one you actually care about: how much money lands in your account after everything is paid.
Gross yield: the listing number
Gross yield is the annual rent divided by the purchase price, before any costs. A property bought at £120,000 that rents for £825 a month produces £9,900 a year, which is a gross yield of about 8.25%. It is useful for one thing only: a quick, like-for-like screen across lots of properties. It tells you nothing about what you keep.
Net yield: the number that pays your bills
Net yield is the annual rent minus the running costs, divided by the total you put in (purchase plus fees plus any refurbishment). The costs that gross yield quietly ignores include:
- Letting and management fees
- Maintenance and repairs
- Insurance and safety certificates
- Void periods, when the property sits empty between tenants
- Ground rent and service charges, if it is a flat
As a rough guide, net yield often lands one to three percentage points below gross. An 8% gross can become a 5.5% to 6.5% net once the real costs are in. That gap is not a detail. It is the difference between a property that funds itself and one that quietly drains you.
A worked example
Take that £120,000 purchase renting at £825 a month, with £6,000 of light refurbishment, so £126,000 all in.
- Annual rent: £9,900
- Running costs (management, maintenance, insurance, a realistic void allowance): say £2,600
- Net income: £7,300
- Net yield: £7,300 ÷ £126,000 = about 5.8%
Still a solid return. But notice it is meaningfully below the 8.25% the listing would have shouted about. The investor who only looked at gross would have budgeted for income that was never going to arrive.
These figures are illustrative, to show the method. Your own numbers depend on the property, the area and the financing.
The one habit that protects you
Before any offer, write down every cost you can think of, then add a void allowance even if you expect none. If the deal still works on the net number, it is a real deal. If it only works on the gross number, it was never a deal, it was a listing.
Gross vs net yield at a glance
| Gross yield | Net yield | |
|---|---|---|
| What it measures | Rent before costs | Rent after running costs |
| Rough formula | Annual rent / purchase price | (Annual rent - costs) / total invested |
| Includes costs? | No | Yes (fees, maintenance, voids, insurance) |
| Use it for | A quick screen across listings | The real decision before you offer |
Common questions
What is the difference between gross and net rental yield?
Gross yield is annual rent divided by the purchase price, before costs. Net yield is annual rent minus running costs, divided by the total you put in. Net is the number that reflects what you actually keep.
How much lower is net yield than gross?
As a rough guide, net yield often lands one to three percentage points below gross once management, maintenance, insurance, voids and any service charges are included. An 8% gross can become roughly 5.5% to 6.5% net.
This is exactly how we underwrite every property before it reaches an investor. If you want deals that already stack up on the net number, let us do the work.
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