Rental yield

Rental yield is a key measure for property investors to assess the income potential of a property. It helps investors understand how much income they will generate relative to their investment.

It impacts investors by giving insight into how quickly the investment can pay for itself through rental income alone.
 

Consider market demand, vacancy rates, and the stability of rental income when calculating rental yield.

Investors must decide whether they are focusing on gross yield (before expenses) or net yield (after expenses) when evaluating a property's performance.

Gross Yield: Rental income return before expenses.

Net Yield: Rental income return after all expenses.

Capital Appreciation: Increase in the property’s value over time.

Advantages: Rental yield gives a straightforward measurement of income potential and allows for easy comparison between properties.

Disadvantages: It doesn’t account for property appreciation or potential operating costs unless net yield is used.

Rental yield is frequently used by investors to compare the income-generating potential of different properties. For example, a property with a 6% rental yield will generate more rental income compared to one with a 3% yield, assuming the property prices are the same.

Scenario: Rental yield is useful when deciding between properties in different regions, as yields can vary significantly depending on location and demand.

How is rental yield calculated?

Divide the annual rental income by the property’s purchase price or market value and multiply by 100.

What is a good rental yield?

In the UK, rental yields typically range between 3% and 7%, depending on the location and type of property.

The average rental yield in the UK can vary widely. For instance, properties in cities like Manchester often offer yields of 5%–7%, while more expensive areas like London may have lower yields, typically around 3%–4%.