Gross yield is a year’s rent divided by the purchase price. Net yield takes off voids, agent fees and running costs first. Return on cash invested then compares your annual cash flow, after mortgage interest, with the money you actually put in, including stamp duty. Each tells you something different.
Gross yield
Gross yield = annual rent divided by purchase price. It is quick for comparing properties, but it ignores costs. At £1,200 a month, annual rent is £14,400. On a £250,000 purchase, gross yield is 5.76%.
Net yield
Net yield is more honest. Start with annual rent, then take away:
- Voids: time the property is empty. At 5%, rent collected is £13,680.
- Letting agent fee: 10% of rent collected is £1,368.
- Running costs: insurance, repairs, safety certificates and service charges. We use £1,500.
That leaves an operating profit of £10,812, so net yield is 4.32% (£10,812 divided by £250,000). It is the yield before any mortgage.
Cash flow and mortgage interest
With a £150,000 interest-only mortgage at 5.5%, interest is £8,250 a year. Annual cash flow before tax is £10,812 minus £8,250, which is £2,562. Interest-only keeps the monthly cost down, but the loan is still owed at the end, as How mortgage repayments are calculated explains for repayment loans. A higher rate bites hard: at 7%, interest is £10,500 and cash flow falls to £312.
Cash invested and return on cash
Your own money is the price less the mortgage, plus stamp duty and other buying costs. Buying an additional dwelling in England adds a 5% surcharge on the whole price, from 31 October 2024 for properties of £40,000 or more. Our estimate for a £250,000 purchase is £15,000 of SDLT; see Stamp Duty, LBTT and LTT explained for the bands.
| Item | Amount |
|---|---|
| Deposit (£250,000 less £150,000) | £100,000 |
| Stamp duty estimate | £15,000 |
| Legal and other costs | £2,000 |
| Cash invested | £117,000 |
| Cash flow before tax | £2,562 |
| Return on cash before tax | 2.19% |
A cash purchase has no interest. Then cash flow is £10,812, cash invested is £267,000 and the return before tax is 4.05%. Borrowing here lowers the return on cash, so leverage only helps when the yield beats the mortgage rate.
Section 24 and tax
Mortgage interest is not deducted from rental profit for individual landlords. Instead, you get a tax reduction at the basic rate, 20% in 2026/27. That 20% figure is from memory and GOV.UK did not confirm it, so check it. From April 2027, finance-cost relief is announced at the new 22% property basic rate.
For a 20% taxpayer on the example, tax is 20% of £10,812 (£2,162.40) minus 20% of £8,250 (£1,650), giving £512.40. After tax, cash flow is £2,049.60, a return of 1.75%. For a 40% taxpayer, tax is £4,324.80 minus £1,650, or £2,674.80, which turns the year into a small loss of £112.80. The calculator uses a simple estimate: other income, allowances and company ownership are not modelled. A £1,000 property allowance exists but cannot be used together with expense deductions.
Costs that catch people out
- Voids and re-letting: budget for gaps between tenants.
- Rule changes: the Renters’ Rights Act 2025 changed tenancy rules in England from 1 May 2026, so check GOV.UK for current obligations.
- Repairs versus improvements: only costs wholly and exclusively for the letting are allowable; improvements are not, so check GOV.UK.
- Rate rises: test your mortgage at a higher rate before you commit.
Note: This is general information, not advice. Tax rules for landlords are complicated, so check GOV.UK or take advice from an accountant.
Using the numbers well
A yield is a starting point, not a verdict. Run the calculator with cautious assumptions first: higher voids, higher running costs and a higher mortgage rate than today’s. If the property still works, you have a margin of safety. If it only works on the best case, treat it as risky. Compare return on cash with other places you could use the same money, and remember that capital growth, which is not modelled here, and any fall in value both matter too. Keep a reserve for repairs, and get professional advice on tax and on the lender’s affordability tests before you buy.
Try the calculator
Enter your own price, rent, costs and mortgage in the Buy-to-let yield and rental profit calculator calculator. To check borrowing, use Mortgage calculator, and for the stamp duty estimate try Stamp duty.
Open the free Buy-to-let yield and rental profit calculator
Worked example 2: a cheaper flat with a lower mortgage
The first example used a £250,000 property. Many landlords buy lower down the price range, so here is a second case run through the buy-to-let calculator’s engine: a £180,000 flat let at £950 a month, with 4% voids, a 12% agent fee, £1,400 of running costs, £1,800 of other buying costs and a £117,000 interest-only mortgage at 5%.
| Line | Amount |
|---|---|
| Gross yield | 6.33% |
| Rent collected (after voids) | £10,944.00 |
| Agent fees | £1,313.28 |
| Running costs | £1,400.00 |
| Operating profit | £8,230.72 |
| Net yield | 4.57% |
| Mortgage interest | £5,850.00 |
| Cash flow before tax | £2,380.72 |
| Stamp duty estimate (England, additional home) | £10,100.00 |
| Cash invested | £74,900.00 |
| Return on cash before tax | 3.18% |
The cash invested is the £63,000 deposit, plus £10,100 of stamp duty and £1,800 of other costs. After the simple tax estimate, a 20% taxpayer is left with £1,904.58 a year, a return of 2.54%. For a 40% taxpayer the same property leaves £258.43, or 0.35%. The pre-tax picture looks acceptable, but the tax rate decides whether the investment is worth the effort. The gross yield is higher than in the first example, yet the return on cash is still thin, because the 5% surcharge and the interest bill take a large share.
How to work it out by hand
You can check any calculator result with a pen and paper. Use the second example:
- Annual rent: £950 × 12 = £11,400.
- Gross yield: £11,400 ÷ £180,000 = 6.33%.
- Rent collected: £11,400 less 4% voids = £10,944.
- Agent fee: 12% of £10,944 = £1,313.28.
- Operating profit: £10,944 − £1,313.28 − £1,400 = £8,230.72.
- Net yield: £8,230.72 ÷ £180,000 = 4.57%.
- Interest: £117,000 × 5% = £5,850, so cash flow is £2,380.72.
- Cash in: £180,000 − £117,000 + £10,100 + £1,800 = £74,900. Divide £2,380.72 by that for 3.18%.
Note that the agent fee is charged on rent actually collected, not on the full rent, and voids come off first. If your agent charges on the full rent, or adds VAT, use their terms instead.
What rate would wipe out your cash flow?
A useful stress test is the break-even interest rate: the rate at which interest swallows the whole operating profit. Divide operating profit by the loan. In the second example, £8,230.72 ÷ £117,000 is 7.03%. For the first property with more cautious assumptions (10% voids and £2,500 running costs, operating profit £9,164), £9,164 ÷ £150,000 is 6.11%. These are before tax, so the real break-even is lower. If you plan to remortgage after a fixed period, ask yourself what happens if the rate you can get then is a couple of points higher. The guide to How much mortgage can you afford? explains why lenders run similar stress tests on your behalf.
Yield versus total return
Yield measures income only. Your total return also includes any rise or fall in the property’s value, minus the costs of selling, and possibly capital gains tax when you sell. A higher yield often comes with weaker tenant demand, older stock or higher running costs, so treat a very high figure with suspicion and find out why. A lower yield in an area with strong rental demand and lower void periods can beat it. Neither figure includes the effort of managing the property, so if you self-manage, put a value on your own time before comparing it with an agent-managed result. For the tax on a future sale, see Capital gains tax explained: rates, allowance and how to work it out.
Glossary
- Gross yield: annual rent as a percentage of price.
- Net yield: rent after voids, fees and running costs as a percentage of price, before the mortgage.
- Void: a period with no tenant, so no rent.
- Interest-only: a mortgage where you pay interest each month and repay the capital at the end.
- Leverage: using borrowed money to buy a larger asset. It magnifies gains and losses.
- Cash flow: money left after all costs and mortgage interest.
- Return on cash invested: annual cash flow divided by the cash you put in, including stamp duty.
Frequently asked questions
What is the difference between gross and net yield?
Gross yield uses annual rent only. Net yield deducts voids, agent fees and running costs, and is a better guide to the property itself.
Does the calculator include mortgage interest in net yield?
No. Net yield is before the mortgage. Mortgage interest is deducted afterwards to give cash flow.
Why is the SDLT figure only an estimate?
It uses the England additional-dwelling rates on the price you enter. Scotland and Wales have different taxes, so check them separately.
Is the tax figure reliable?
It is a rough guide using one marginal rate and a 20% interest credit. Check GOV.UK, as your own circumstances will change the answer.
What is a good buy-to-let yield?
There is no single figure. A good yield is one that still leaves a positive cash flow after voids, running costs and a higher mortgage rate than today’s. Compare the return on cash with what else you could do with that money.
Should I use gross or net yield to compare properties?
Use gross yield for a quick first screen and net yield before you make an offer, because net yield includes the costs that differ between properties, such as service charges and agent fees.
Does the calculator include capital growth?
No. It models rental income, costs, interest and a simple tax estimate. Any rise or fall in the property’s value, and tax when you sell, are outside it.
Is a repayment mortgage treated differently?
The calculator assumes interest-only. With a repayment mortgage your monthly payment is higher, but part of it repays the loan rather than being a cost, so cash flow looks worse while your equity grows. Only the interest part counts for finance-cost relief.