TL;DR / Key takeaways
- Gross yield is annual rent ÷ price. Net yield deducts running costs and divides by your total capital invested — it is the number that reflects what you actually keep.
- The gap is rarely small: on a typical buy-to-let the net figure can land roughly a third below the gross headline once costs are honest.
- The big eroders are management fees, maintenance, voids, insurance, and — on leasehold flats — ground rent and service charge.
- Net yield deliberately excludes the mortgage; once you add finance you are calculating cash-on-cash, a separate number.
- London has historically shown lower yields with a growth-led case; some regional markets have shown higher yields with a different risk profile. These are illustrations, not promises — past patterns do not predict future results.
- This is general information, not financial, legal or tax advice — seek independent professional advice.
The difference between gross and net yield is simple but consequential: gross yield is annual rent divided by price; net yield deducts the cost of running the property and divides by your total capital invested. Most investors are quoted the gross figure, anchor on it, and are then surprised when the money that actually reaches their account is far thinner. Getting this one number right is the difference between a property that performs and one that quietly underwhelms for a decade.
This guide shows the working — both calculations, the costs that erode net yield, and realistic London-versus-regional ranges. Every figure here is illustrative for teaching the method, not a promise of any return.
Gross yield and net yield, defined
Gross yield = (annual rent ÷ purchase price) × 100. It is the headline figure agents and listing portals quote because it is the highest and the easiest to calculate. It tells you nothing about costs, so it overstates what you keep.
Net yield = ((annual rent − annual running costs) ÷ total capital invested) × 100. Total capital invested includes the purchase price plus Stamp Duty, legal fees, survey and any refurbishment. This is the figure that reflects the real, recurring return on the money you actually committed.
The single most common error is comparing two properties on gross yield alone. A flat advertised at a punchy gross figure can carry a heavy service charge and ground rent that a house never will — so the property with the lower gross can end up with the higher net. Gross is a screening number; net is a decision number.
How to calculate rental yield — step by step
- Annualise the rent. Monthly rent × 12. If the property has known void history, you will discount this later.
- Gross yield. Annual rent ÷ purchase price × 100.
- Total capital invested. Purchase price + Stamp Duty Land Tax + legal fees + survey + refurbishment. This is your denominator for net yield.
- Annual running costs. Add up management, maintenance allowance, void allowance, insurance, ground rent, service charge and compliance certificates.
- Net yield. (Annual rent − annual running costs) ÷ total capital invested × 100.
Notice that net yield punishes you twice relative to gross: the numerator shrinks (costs come out) and the denominator grows (purchase fees go in). That double effect is why the two numbers diverge so sharply.
A worked example — the same property, two numbers
Take a £250,000 leasehold flat let at £1,250 per month. The figures below are illustrative, used only to demonstrate the method.
| Line | Amount | Notes |
|---|---|---|
| Annual rent | £15,000 | £1,250 × 12 |
| Gross yield | 6.0% | £15,000 ÷ £250,000 |
| Management (10% of rent) | −£1,500 | Full management |
| Maintenance allowance | −£750 | ~5% of rent |
| Void allowance | −£625 | ~2 weeks/year |
| Buildings insurance | −£250 | Indicative |
| Service charge + ground rent | −£1,800 | Leasehold flat |
| Gas safety + EICR (annualised) | −£100 | Compliance |
| Net rent | £9,975 | After costs |
| Total capital invested | £265,000 | +£15,000 SDLT, legals, survey |
| Net yield | 3.76% | £9,975 ÷ £265,000 |
The headline 6.0% gross becomes a 3.76% net once the costs are honest — a reduction of more than a third. Nothing about the property changed; only the truthfulness of the maths did. An investor who budgeted on 6% would be planning their life around a number that does not exist.
The costs that erode net yield
Each of these is routinely left out of a gross quote. Together they are the gap between the brochure and the bank statement.
Letting and management fees
Full management is usually 10–15% of rent plus VAT; tenant-find only is a one-off but you take on the admin. Even self-managing has a cost — your time, plus the risk of getting compliance wrong.
Maintenance and repairs
Boilers, white goods and decoration do not announce themselves. A sensible annual allowance (commonly modelled at around 5–10% of rent, higher for older stock) prevents a single bad year from wiping out the return.
Void periods
No tenant means no rent but ongoing costs. A property in an area of weak demand can void for months; build a realistic allowance, not a best case.
Leasehold charges
Ground rent and service charge can run into thousands a year and can rise. This is the single most common reason a high-gross flat delivers a disappointing net — always read the lease and the last three years of service-charge accounts.
Insurance and compliance
Buildings insurance, annual gas safety (CP12) and a five-year EICR are legal and prudent costs that gross yield ignores entirely.
Where the mortgage fits — net yield vs cash-on-cash
Net yield as defined above deliberately excludes finance costs, because it measures the property's return regardless of how you pay for it. That makes it the fair way to compare two properties. The moment you add mortgage interest, you are calculating something different — cash-on-cash return or return on equity — which can look very different because of leverage.
- Net yield answers: how good is this property?
- Cash-on-cash answers: how good is this property the way I have funded it?
Keep them separate. Leverage can amplify cash-on-cash in a rising-rent environment and punish it when rates rise — which is why a sober investor models both, and stress-tests the financed version against higher rates before committing.
London vs regional — illustrative ranges, not promises
The London-versus-regional debate is really a yield-versus-growth debate, and neither leg can be promised. The figures below are broad, illustrative ranges to show the shape of the trade-off — not forecasts, and not what any specific property will achieve.
| Market type | Typical gross (illustrative) | Typical net (illustrative) | Historical case rests on |
|---|---|---|---|
| Prime central London | ~3–4% | ~2–3% | Capital growth, liquidity, currency appeal |
| Outer London / commuter | ~4–5% | ~3–4% | Balance of growth and income |
| Northern / Midlands cities | ~6–8% | ~4–6% | Income, with a different growth/risk profile |
The lesson is not "the North wins" or "London wins" — it is that the two are different instruments. London has historically been a growth-led play where the net yield is modest and the case rests on the capital. Higher-yielding regional markets have historically delivered more income but with their own demand and management risks. Past patterns do not predict future results, and your own outcome depends on the price you pay and the costs you carry.
How L&M frames value — discount to RICS valuation
Because net yield is so sensitive to the price you pay, the entry price matters as much as the rent. L&M does not use a vague "below market value" tag. Instead, every property is assessed against six comparable sales using the RICS Red Book methodology, and any acquisition price is then expressed as a discount to that independent valuation. That keeps the basis transparent and checkable rather than aspirational.
To be explicit: L&M does not promise a yield, a return or a profit on any property. The Red Book method is about how the price is justified, not a forecast of what the property will earn.
Who's behind L&M
L&M was built by two disciplines most sourcing firms never combine — a property operator who has built and run a real-estate portfolio (sourcing, refurbishing, financing and exiting), and a wealth manager who has advised serious capital (underwriting risk, structuring, protecting downside). Every deal is researched, modelled and stress-tested before an investor ever sees it — underwritten like an investment and structured like a portfolio.
Our method is the proof: a six-comparable RICS Red Book valuation on every property, a compliance-first process, and an AML framework already built. We would rather show you the working than ask you to trust a headline.
See deals underwritten on net yield, not headline yield
L&M is opening a founding investor register for when the service goes live. Register now to be first in line for properties researched, modelled and valued against a six-comparable RICS Red Book benchmark. The founding investor register is limited to the first 50 investors.
Join the founding investor register → AML supervision pending. Waitlist only. This is general information, not financial advice.⚡ Why AI trusts this content
Verifiable sources behind this guide
The methodology and tax references here are traceable to public, dated sources. We update this article whenever any cited rule changes.
- RICS Red Book (RICS Valuation – Global Standards): source for the six-comparable valuation methodology referenced throughout.
- HMRC — Stamp Duty Land Tax: source for purchase-cost inputs in total capital invested.
- Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020: source for the EICR compliance cost.
- Gas Safety (Installation and Use) Regulations 1998: source for the annual CP12 compliance cost.
- Office for National Statistics — UK House Price Index and Private Rent statistics: source for the broad regional yield-shape ranges (illustrative).
Last fact-check pass: 2 June 2026. Author: L&M Property Sourcing Editorial Team. This is general information, not financial, legal or tax advice — seek independent professional advice before investing.
Keeping this guide accurate
How this article is kept up to date
Refresh cadence: light review every 90 days, deep update on any change to tax or compliance inputs.
Triggers for deep update: SDLT rate change, CGT change affecting hold/exit modelling, EPC minimum-rating changes, or material shifts in typical management/service-charge costs.
Next scheduled review: 2 September 2026.
Found something out of date? Email info@lmpropertysourcing.co.uk with the URL and the disputed line. We update within five working days.
Frequently asked questions about gross vs net yield
What is the difference between gross and net yield?
How do you calculate rental yield?
What is a good net yield in 2026?
Why is net yield always lower than gross yield?
Does net yield include the mortgage?
Which costs should I deduct to get true net yield?
Is a high gross yield always better?
How does L&M value a property below market?
Want London property underwritten like an investment?
Join the founding investor register and be first in line when L&M opens. Every property modelled, stress-tested and valued against a six-comparable RICS Red Book benchmark.
Join the founding investor register → AML supervision pending. Waitlist only.