Rental or property yield is the return you either make or hope to make on a property you own or are thinking about buying.
Investors and landlords use this figure to measure their investment’s value, to be sure of the return on their capital.
To work out rental yield for UK properties, you should use this straightforward formula:
Rental yield = (Monthly rental income x 12) ÷ Property value
So, you take the monthly rental income amount or expected rental income and multiply it by 12 (the number of months).
Then, divide this number by the purchase price of the property, or its current market value, and multiply this figure by 100 to get the percentage figure.
Let’s walk through the formula with an example:
Your monthly rental income is: £1,400
Your annual rental income is: £1,400 x 12 = £16800
You purchased the property for: £350,000
Your rental yield is: (£16800 ÷ £350,000) x 100 = 4.8%