What Is a Good Rental Yield?

Learning about property rental yield is vital for an investor. Without understanding how to work out yield on rental property you could be setting yourself up for failure before you even start. With this in mind, read this guide on “what is a good rental yield?” to learn more about property rental yield. 

What Is a Good Rental Yield

When it comes to property investment, there are few measurements more valuable for a successful investment than rental yield. 

Understanding and being able to calculate rental yield for a property is an invaluable skill and sets the best investors apart from the rest.  

Without knowing what a rental yield is or how to identify a good rental yield, investors will limit their potential returns.  

If you’re keen to get the most out of your buy to let investment and want to find out more about yield on rental property, this guide is for you.  

Contents

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Here, you’ll find answers to questions like ‘what is a good rental yield?’, “what is a good yield on rental property?” “how do you work out rental yield?” and much more. 

We also outline the property yield definition, best UK areas for property yields, buy to let yields by postcode, and offer tips on maximising rental returns.  

If this sounds useful to you, keep reading for our detailed guide to buy to let yields. 

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What Is a Rental Yield?

What is yield in property What is yield in property

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 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. 

How to calculate your rental yield formula How to calculate your rental yield formula

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

Currently, in the UK, the average monthly rental income is £996, according to HomeLet’s rental index. 

Using this figure alongside the average UK house price of £256,405, according to the Land Registry, and the average UK rental yield is currently 4.66%. 

This means that, on average, you will see an annual 4.66% return on your investment 

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. 

Earn Up to 8% Assured Rental Yields With RWinvest Today

Why are rental yields important? Why are rental yields important?

Why Are Rental Yields Important?

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 yield represents this cash flow of rental property in a simple to understand way, with 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 rent 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 a 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. 

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. 

What Is a Good Rental Yield?

How to Calculate Rental Yield How to Calculate Rental Yield

How to Work Out Rental Yield: How Do You Calculate Yield on Rental Property?

Want to know how to work out yield 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 rental yield may be easier to do.  

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

Rental Yield Rental Yield

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 yield calculator.

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.

How to Work Out Yield on Rental Property You Don’t Yet Own 

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.  

Rental yields by area Rental yields by area

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 an accurate picture of how well your property will perform in rental yield. 

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Current Average Rental Yield in L1 Liverpool Current Average Rental Yield in L1 Liverpool

Calculating Rental Yield Example 

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 UK 2017, 2018, 2019, 2020, and now 2021. 

What’s the Difference Between Gross Rental Yield and NET Rental Yield?

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 costs that 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 property UK figures. 

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. 

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. 

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 up to 8%. 

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. 

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 up to 8%. 

Invest in Exclusive UK Property Today with Huge 8% Rental Yields

What Are the Best Rental Yields in UK?

Liverpool  Rental Yields

If you want to know some of the best buy to let yields available, and a city home to some of the highest buy to let yields by postcode, then look no further than Liverpool. 

Located in the North West, Liverpool is one of the UK’s top buy to let cities and boasts some of the best rental yields in the country.  

House prices in the city have grown by a whopping 18.09% between March 2020 and March 2021, yet despite this, the city still has incredibly low house prices and huge rental yields. 

Liverpool was the UK’s top rental yield postcode for 2020, according to Totally Money, with rental yields available of 10%. 

This excellent reputation has continued into 2021, with the city now offering average yields of 6.33%. 

Some of the best rental yields by postcode in Liverpool are all based in the city centre.  

This includes L1, L6, and L2 which can generate yields over 8%. 

Liverpool has continually exceeded in recent years for rental yield, due to incredibly low house prices which are currently just £156,855 according to the UK House Price Index. That’s over £100,000 below the UK average! 

The Merseyside city was one of the best rental yields UK 2018, 2019, 2020, and now 2021. 

Average rental yields in this city even outrank many countries with the best rental yields in the world for 2018.  

For example, Germany offers an average rental yield of just 3.99%. 

Why Does Liverpool Have Some of the Best Rental Yields in the UK? 

Liverpool boasts some of the best buy to let yields due to its popularity with renters.  

Since many of the most highly ranking postcodes are located in Liverpool’s city centre, it’s clear that the city’s high population of young professionals and students is helping to grow the average property yield significantly. 

According to Go Compare, Liverpool has average rental price growth of 2.65%. The current average monthly rental cost in Liverpool is £828, according to Zoopla.  

Liverpool property prices are famously low compared to most other parts of the UK, with a current average value of £156,855.  

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As previously mentioned, student properties tend to generate some of the highest rental yield rates.  

Boasting a student population of over 70,000 and housing some of the UK’s top institutions such as the University of Liverpool and Liverpool John Moores University, Liverpool is filled with students seeking quality rental accommodation.  

Many of these students are from overseas countries, and might be willing to splash out on more high-end accommodation.  

In fact, in the University of Liverpool, a reported one in five students are Chinese 

Luxury student accommodation has become more popular over recent years and consists of apartments with modern designs, state-of-the-art fixtures and fittings, and attractive amenities like onsite gyms, 24-hour security, and superfast Wi-Fi.  

Those who purchase a luxury and more high-end property in Liverpool could benefit from an attractive buy to let yield. 

When it comes to generating high rental yields, Northern cities like Liverpool and Manchester are an ideal choice thanks to low property prices and increasing rental income.

Daniel Williams, RWinvest

Manchester Rental Yields

Another of the North’s key cities, Manchester is considered an ideal investment area when comparing rental yields by city.  

Like Liverpool, the city has dominated price growth charts, with one of the highest growth rates in the UK, increasing by over 380% since 2001. 

Manchester has both higher average house prices and higher rent than Liverpool, resulting in slightly higher rental yields of 6.34%. 

Pair these fantastic rental yields with an expected 28.8% property price growth by 2025, and it’s clear that Manchester is a win-win location for both rental returns and capital growth. 

Why Is Manchester One of the Best Cities for High Yield Property Investments?

Manchester has demand and affordability on its side when it comes to buy to let.  

Property prices in Manchester average around £211,107 based on UK House Price Index figures, with a huge 6.3% average rental price increase, according to HomeLet. 

With a famous business scene and a student population of over 100,000, the number of young professionals and students looking for rental accommodation in the city is high, which has allowed rental values to rise. 

The average rent in Manchester, according to Zoopla, is £1,115 per calendar month. Rental costs can vary depending on the area, and spots like Manchester city centre and Salford tend to be more expensive to live in.  

The average monthly cost for a one bed flat in Manchester city centre is £919, while the Salford average for a one bed flat is a little lower at £774.  

Both these areas are massively popular with young professionals due to the high number of businesses in the area.  

Salford, in particular, is home to MediaCityUK – a huge regeneration project which houses multiple big business names such as BBC and Kelloggs.  

Tenants working in the area drive demand for accommodation that is close to their workplace, local amenities, and transport links.  

Our new Merchant’s Wharf property, based in between Manchester city centre and Salford Quays, ticks these boxes and offers up to 6.5% projected rental yields. 

Another postcode in Manchester with the best buy to let returns is the M14 postcode – a popular student hotspot.  

Home to the University of Manchester’s Fallowfield campus, this area attracts a lot of the city’s students and can generate yields upwards of 8.3%. 

Investing in an area like this is a solid option as you’re guaranteed fewer potential void periods, allowing for consistent rental returns. 

How Can I Maximise Rental Yield on a Property?

Using Rental Yields in Your Investment Strategies

Using Rental Yields in Your Investment Strategies Using Rental Yields in Your Investment Strategies

So, we’ve covered all the most important elements of rental yields, and hopefully, you’re feeling ready to take on your first or next buy to let investment and attract the best rental yields in the process.  

One final thing you need to think about is how you’re going to utilise rental yields in your property investment strategy. 

When creating your investment strategy, you first need to understand your goals.  

Do you want to focus solely on rental returns, or are you more interested in capital gain? Or, are you keen to include both these goals in your strategy? 

We already touched on the importance of focusing not just on rental yields but factoring in house price growth too.  

This way, you don’t limit your chances of making two types of return on your investment as yield and growth go hand in hand.  

This is something that you don’t get with the stock market, as investing in stocks only allows for one type of return.  

That’s why, when choosing between a pension or property investment, many people view property as a more lucrative option. 

You should definitely take advantage of the potential for multiple returns that comes from real estate investing.  

Look at the statistics on house price growth in the city your investment is based in, along with any regeneration as this can boost growth massively.  

You also need to pay attention to demand in the area, as without this, your rental returns will be inconsistent.  

Increasing rental costs are usually a good indication of high levels of demand, so try and seek these out whenever you find an opportunity you’re interested in. 

If you’ve found an investment property with a promising rental income, strong capital growth, and in an area with a thriving property market, you’re on the right track towards a lucrative and rewarding buy to let venture! 

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FAQs

Generally, 5% and above is considered a good rental yield. For the best rental yields UK, you should be aiming for higher buy to let returns, such as 7% or 8%. 

Any yields between 5% and 8% are considered acceptable, although it is more ideal to find returns of 7% and above. 

A good yield on a rental property UK is anything between 5% and 8%. 

A rental yield of 4.5% wouldn’t be considered good. Usually returns upwards of 5% are traditionally seen as good for property investors. 

In the UK, the current average rental yield is 4.66% as of June 2021. However, you can find returns much higher, with cities like Liverpool and Manchester offering returns upwards of 6.33%. 

Is 5% a good rental yield?

Generally, 5% and above is considered a good rental yield. For the best rental yields UK, you should be aiming for higher buy to let returns, such as 7% or 8%. 

What rental yield is acceptable?

Any yields between 5% and 8% are considered acceptable, although it is more ideal to find returns of 7% and above. 

What is a good yield on a rental property UK?

A good yield on a rental property UK is anything between 5% and 8%. 

Is 4.5% a good rental yield?

A rental yield of 4.5% wouldn’t be considered good. Usually returns upwards of 5% are traditionally seen as good for property investors. 

What is the average rental yield?

In the UK, the current average rental yield is 4.66% as of June 2021. However, you can find returns much higher, with cities like Liverpool and Manchester offering returns upwards of 6.33%. 

Put These Tips and Advice Into Action

We hope you’ve enjoyed these property investment tips and our guide to “what is a good property yield?” 

Now that you know more about rental yields and the part they play in buy to let, why not take your next step and find your ideal investment?  

We can offer expert advice for landlords to-be, and love to help people begin their rental property investing journey. 

Contact us today, and we’ll help you find the perfect opportunities for you.  

For more information on all things property investment, stay up-to-date with our investor guide content where you can find tips and information on things like property prices after Brexit, how to become a property developer, and more, along with our RWinvest property podcast series. 

The Data We Used 

This guide to “What is a good rental yield UK” was last updated in June 2021. Please keep in mind that statistics and data may have changed depending on the date you read this content. 

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The Summit

Stylish Baltic Triangle Living

Liverpool Prices from £139,950

Assured 7% NET Rental Yields

15-20% Below Market Value

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ELEMENT - The Quarter

North West's First Eco-Development

Liverpool Prices from £74,950

8% NET Rental Return

300m Away From New £1bn Royal Hospital

10% Deposit

Off Market Manchester Apartments

Premium Residential Investment

Manchester Prices from £219,112

5.5% NET Rental Return

10% Deposit Required