What Is A Good Rental Yield, and Why Are Rental Yields Important? (2024)

So, what is a rental yield, and what is yield in property? If you’re looking for a property yield definition and the rental yield meaning, then this section is for you.

A rental yield is the percentage of return on investment that a property investor receives through rental income.

It is calculated by dividing your yearly rental income by the original price of the property and multiplying it by 100 for a percentage.

A property rental yield tells you how much money you will make from your investment. That’s why rental yields are used to determine potential buy-to-let income.

Investors will usually pay a lot of attention to rental yields, and put a lot of time into their search, as it essentially shows how successful an investment will be.

It is calculated by dividing your yearly rental income by the original price of the property and multiplying it by 100 for a percentage.

Currently, in the UK, the average monthly rental income is £1,174, according toHomeLet’s rental index.

Using this figure alongside the average UK house price of £295,000, according tothe Land Registryleads to a rental yield of 4.7%.

When choosing properties, most investors use rental yield as the benchmark and will place the bulk of their focus on choosing investments with the highest return potential.

This is why researching areas is key to finding the best yield on property investment.

The main reason so many people invest in real estate is to enjoy a cash flow of rental returns.

Ensuring that you generate a high rental return is crucial if you want to maximise income.

Rental yields represent this cash flow of rental property in a simple-to-understand way; the higher the percentage, the better the investment’s income potential.

While it doesn’t mean you will get higher rent, it does show the return on your investment, which is essential to any investment class.

No one wants to lose money on an investment. This is why you should be aiming for properties that are more affordable with higher rental costs to ensure the best rental yields.

Property is a long-term strategy, and with high rental yields, it shows an asset class has long-term sustainability without the investor having to worry about damaging their income with running costs.

However, while they are important, rental yields aren’t the be-all and end-all of buy-to-let investment.

The best buy-to-let investment strategies combine a good rental yield with house price growth potential and tenant demand.

Say, for instance, you buy a property with an average rental yield of 8%.

A high average rental yield is great but imagine that the postcode the property is based in shows no sign of future house price growth.

The property itself also struggles to drive demand, leaving you without tenants for long periods.

If you don’t investigate levels of demand and potential capital growth, you won’t feel the full benefit of the investment, no matter how high the buy-to-let yield is.

This is something we will address in a later section, but for now, the bottom line is rental yield is essential to consider for a successful property investment.

If you are looking to find out what a good yield is on a rental property, what is a good property yield, or what is a good yield on a rental property in the UK, this section is for you.

Generally, a good rental yield is anything between 5 and 8%. Rental yields can differ heavily between property type and location, with student properties often offering the highest rental yields due to low housing prices.

Cities like Liverpool, for instance, have higher rental yields than London due to property prices being more affordable.

In London, the average rent is far higher than in the rest of the UK, with current Home.co.uk statistics indicating that the London median average rent is £3,000 pcm. On the other hand, Liverpool is 117% below this figure, with a median average rent of £775 pcm.

Whilst this seems like London is a clear choice for an investment, the astronomical house prices drag down the rental yield percentage.

Using Zoopla data, some areas of London have a rental yield as low as 3.3%, due to an average property value of £1,171,159.

For Liverpool, the average house price is £184,447 per official Land Registry data. This means that Zoopla’s data suggests that Liverpool has an average rental yield of 7.02%, much higher than areas of London can record.

This is why factoring in affordability is so vital instead of focusing on high rental figures. Liverpool property investments perform far better than London due to this significantly higher rental yield.

All in all, though, a good yield is anywhere between 5 and 8%, but you should aim for 7 to 8% or beyond for the best yield on property investment.

So when you’re wondering what is a good rental yield for your property, aim for somewhere between these numbers.

When comparing property rental yields, all yields aren’t made equal.

Due to the different price points seen between student vs residential properties, the definition of what makes a good rental yield will change between the pair.

A high yield doesn’t always meanstudent propertyis superior to residential, as residential will offer far higher house price growth rates for the future.

If you want to learn more aboutproperty investment strategiesand understand the pros and cons of residential, student and other types of property, be sure to check out our guide.

In the meantime, let’s take a look at what makes a good rental yield for student and residential properties.

A minimum of 5% indicates a smart investment for residential property. For student accommodation, however, a rental return of up to 7% is a lot more common.

But why does student property generate such good rental yield averages?

Student tenants tend to reside within the same accommodation for at least one academic year, giving investors a secure period in which returns are assured and void periods are dodged.

Student properties also come with a cheaper market price, especially since a lot of the properties are studio apartments.

Paired with high monthly rent, investors can end up with a strong yield on rental property investments.

Residential property yields are also capable of reaching some very high figures.

However, since residential properties tend to come with higher property prices than student property, achieving strong yields can sometimes be more difficult and investors should do their research to ensure they’re securing an investment with the highest yields possible.

So if you want to know what is a good rental yield for student properties, aim for above 6%. Whereas, if you are wondering what is a good rental yield for residential property, expect slightly lower returns.

Want to know how to work out yields on rental property? It’s simple.

Divide your annual rental income by the purchase price of the property and multiply your result by 100.

This property yield formula will leave you with a buy-to-let rental yield percentage.

If you already own a buy-to-let property and don’t know your current yield, calculating the rental yield may be easier to do.

Since you already know how much you generate in rental income, you can use this to accurately calculate a yearly figure.

So if you want to know what is a good rental yield and find out the answer yourself, try using different levels of rent to try and work out what will be best for you.

Rental Yield Calculator UK

If you don’t want to spend time calculating your own yields and don’t want to use a property yield formula, then why not use a rental yields calculator?

When you want to find out what is a good rental yield, calculators can be a good way to help you understand how rental yield percentages are created.

Here, you can just put your expected rental income and property prices into a rental yield calculator online, and let the calculator do the hard work for you.

Working out rental yields has never been easier with a buy-to-let rental yield calculator.

Calculate yield using a property yield calculator online for free, such as this one by Landlord Vision.

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So, what happens if you don’t know the property’s rental income to calculate a rental yield? Well, there are a few things you can do.

Firstly, you may not have to calculate rental yields if you use the services of a property investment company.

When buying through a company like this, many property investment companies advertise either assured or projected rental yields for properties.

This means you will already know what rental yields to expect when entering an investment. If buy-to-let yields are listed as assured, this will normally be for a set number of years.

If you’re buying property privately, without the help of an investment company, there are things you can do.

Researching average rental yield statistics for the area a property is based in is a good idea.

You could also look at current rental prices for similar properties in the area and calculate their rental yield to get an idea of what to expect.

To do this, you can check local rent statistics on property portals like Zoopla or Rightmove.

Here, you can type in your target postcode and see the latest property prices and rental prices by property for that area.

All you will have to do then is place the numbers into the rental yield calculation to work out your average gross rental yield (something we will address in the next section).

While this isn’t the specific yield on the household you’re interested in, it does show what rental income you can expect.

Usually, landlords will charge a monthly rental figure that is similar to other properties in the area. By following this Zoopla method, you will be able to get a more accurate picture of how well your property will perform in rental yield.

Now that we know how to calculate rental yields, it’s time to work out an example calculation to find out the buy-to-let returns.

Let’s say you’re looking to invest in the Liverpool postcode of L1 in the city centre.

Currently, on Zoopla, the average property price listed in the area is valued at £128,089. Rent, on the other hand, is around £856 per month, or £10,272 per year.

Placing our numbers into the equation then, we will be dividing the total yearly rental income of £10,272 and dividing it by £128,089, before multiplying it by 100 for a percentage.

So, according to this yield calculation formula, the current average rental yield in the L1 postcode of Liverpool is a whopping 8.02%!

This is one of the best yield property UK figures you can expect and shows why Liverpool has continued to generate some of the best rental yields in the UK in 2023.

Up to this point, we’ve been talking about rental yield in the most basic of terms using just rent and purchase prices to calculate the rental yield percentage.

However, if you want a more accurate view of exactly how your investment will perform including any outgoings, then you will need to consider gross rental yield vs NET rental yield.

Gross rental yield is everything before expenses, while net rental yield is the rental yield figure after expenses.

Net rental yields are often favoured as they’re more accurate than gross yields. However, gross rental yields are easier for investors to calculate themselves.

Added coststhat are factored into a net rental yield include maintenance costs, agent or management fees, mortgage repayments, and taxes like mortgage tax and stamp duty.

When working out net rental yield, you may also need to factor in the possibility of void periods where your property isn’t being occupied.

To be on the safe side, account for a month or two of rental loss so that you’re more prepared if you do encounter void periods.

The net rental yield can be difficult to calculate if you don’t already own the property or know the exact costs involved.

At RWinvest, we provide details on the net income for each of our investment opportunities.

This way, you’re able to find a high-yield property more quickly and easily than if you had to manually work out the rental yields yourself.

With us, you can expect to find properties with net rental yields up to 8%, which is some of the highest yield properties in UK figures.

What Is a Good Gross Rental Yield?

Since gross rental yields don’t factor additional costs into the property yield formula, rental yields may appear to be higher than they actually are.

For this reason, gross rental yields should be a little higher than net yields.

This way, the net rental yield you end up with, which is the accurate rental yield percentage, won’t seem low in comparison.

Good gross rental yields can fall anywhere between 6 and 9%. The current UK average gross rental yield is 4.66%, according to figures from HomeLet and the UK House Price Index.

What Is a Good NET Rental Yield?

After all additional costs have been accounted for, a good net rental yield should be between 5% to 8%.

A rental yield of this figure ensures the investor is still making a significant return on their investment, even after mortgage payments, taxes, and more.

A commonly asked question on rental yields is ‘is 4.5% a good rental yield?’ but the reality is that for the best returns, you should look for 5% at a minimum.

What Is an Assured Rental Yield?

You may have noticed that we mentioned assured rental yields earlier. Assured rental yields are some of the biggest perks of investing through a company and should be on every investor’s list of demands if they want to make the best returns possible.

An assured rental yield is a rental guarantee offered by the developer of your chosen investment.

Investing in a property with an assured rental yield allows you to receive a fixed return on your investment for a set period.

Usually, this will be at least one year.

After the assured rental yield period is over, you can still generate consistently high returns, provided you invest in an area with high rental costs and strong tenant demand.

Here at RWinvest, one of the top UK property investment companies, we offer assured rental yields of up to 8%.