How to Calculate Rental Yield — The Formula with Step-by-Step Examples

The Rental Yield Formula

Rental yield is one of the most straightforward calculations in property investment. The core formula is:

**Gross Rental Yield (%) = (Annual Rental Income ÷ Property Value) × 100**

For net yield, you first subtract all annual running costs from the rental income:

**Net Rental Yield (%) = ((Annual Rental Income − Annual Costs) ÷ Property Value) × 100**

That is it. No complex maths required. You can calculate it manually in under a minute, or use our [rental yield calculator](/rental-yield-calculator) to model multiple scenarios instantly.

Step-by-Step: Calculating Gross Yield

**Step 1 — Establish the monthly rent**

Use your current contracted rent, or the market rent if you are assessing a new purchase. Portals such as Rightmove and Zoopla show "rental comparables" for nearby properties.

**Step 2 — Convert to annual income**

Monthly rent × 12 = Annual rental income

**Step 3 — Identify the property value**

Use the purchase price for a new acquisition. For an existing property, you can use the current market valuation, your outstanding mortgage balance, or the original purchase price — each gives a different perspective on return.

**Step 4 — Apply the formula**

(Annual rent ÷ Property value) × 100

Worked Example 1 — Flat in Manchester

• Purchase price: £180,000
• Monthly rent: £925
• Annual rent: £925 × 12 = £11,100
• Gross yield: (£11,100 ÷ £180,000) × 100 = **6.17%**

Worked Example 2 — Terraced House in Leeds

• Purchase price: £145,000
• Monthly rent: £775
• Annual rent: £775 × 12 = £9,300
• Gross yield: (£9,300 ÷ £145,000) × 100 = **6.41%**

Worked Example 3 — Two-Bedroom Flat in South East London

• Purchase price: £380,000
• Monthly rent: £1,650
• Annual rent: £1,650 × 12 = £19,800
• Gross yield: (£19,800 ÷ £380,000) × 100 = **5.21%**

Worked Example 4 — Net Yield Calculation (Manchester Flat)

Using the Manchester example above with estimated annual costs:

• Net annual income: £11,100 − £2,953 = £8,147
• Net yield: (£8,147 ÷ £180,000) × 100 = **4.53%**

Reverse Engineering: What Rent Do You Need for a Target Yield?

If you have a target yield and know the property price, you can work backwards:

**Required Annual Rent = Property Value × (Target Yield ÷ 100)**

Example: To achieve 6% gross yield on a £200,000 property:

• Required annual rent = £200,000 × 0.06 = £12,000
• Required monthly rent = £12,000 ÷ 12 = **£1,000**

Working Out the Maximum Purchase Price for a Target Yield

If you know what the property rents for and have a minimum acceptable yield:

**Maximum Purchase Price = Annual Rent ÷ (Target Yield ÷ 100)**

Example: Property rents at £850/month (£10,200/year) and you need at least 6% gross yield:

• Maximum price = £10,200 ÷ 0.06 = **£170,000**

These reverse calculations are particularly useful when negotiating purchase prices on investment properties. Use our [rental yield calculator](/rental-yield-calculator) to run all of these scenarios side by side.