Buy-to-let Yield
What is buy-to-let yield?
Yield is a simple way to estimate the potential return from a buy-to-let investment property. The calculation is based only on the property value and the annual rental revenue it can generate.
"Yield" is also sometimes called "Gross Yield" to distinguish it from "Net Yield" which would be a variation that includes expenses in the calculation (see below).
One of the benefits of yield is it's simplicity to calculate and consistency regardless of mortgage and expenses, hence net yield is rarely used. For more detailed calculations including expenses, ROI is more common.
How do you calculate buy-to-let yield?
([annual rental income] / [property value]) * 100 = [yield]
The yield is represented as a percentage.
Here's an example:
- Property value: £180,000
- Annual rent: £9,900 (monthly rent: £825)
Yield: (9900 / 180000) * 100 = 0.055 * 100 = 5.5%
You can use the free PaTMa buy-to-let yield calculator to do the calculation for you.
How do you calculate buy-to-let net yield?
( ([annual rental income] - [annual expenses]) / [property value]) * 100 = [yield]
Net yield does not normally include the cost of finance in the annual expenses.
The net yield is represented as a percentage.
Here's an example:
- Property value: £180,000
- Annual rent: £9,900 (monthly rent: £825)
- Managing agent, maintenance, voids (estimated, annual): £1,485
Net Yield: ( (9900 - 1485) / 180000) * 100 = (8415 / 180000) * 100 = 0.0468 * 100 = 4.68%
You can use the free PaTMa buy-to-let yield calculator to do the calculation for you.