What Is A Good Rental Yield, and Why are Rental Yields Important?
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For investors, some of the most common questions when starting out centre around rental yields, and what a good rental yield is.
That’s because 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 the rental yield for a property is an invaluable skill and sets the best investors apart from the rest.
But what is a rental yield? And what is a good rental yield to aim for when investing in buy to let?
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.
Here, you’ll find answers to questions like “what is a good rental yield?”, “what is a good yield for 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?
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 to HomeLet’s rental index.
Using this figure alongside the average UK house price of £295,000, according to the Land Registry leads 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.
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 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.
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What Is a Good Rental Yield?
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.
What Is a Good Rental Yield for Student vs. Residential Property
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 mean student property is superior to residential, as residential will offer far higher house price growth rates for the future.
If you want to learn more about property investment strategies and 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.
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How to Work Out Rental Yields: How Do You Calculate Yield on Rental Property?
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.
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.
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.
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 in the UK in 2023.
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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 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%.
What are the Best Rental Yields in the UK?
Now you understand what rental yields are, how to work out rental yields and the difference between net and gross rental yields, it’s time to look at rental yields by city in the UK.
When you explore buy-to-let rental yields by postcode, you’ll find that certain UK areas can differ quite dramatically in their average property yields.
So where can you find the best yields in the UK?
In the UK, cities up North currently boast some of the best buy-to-let yields while the South offers disappointing rental returns in comparison.
Cities in the North of England dominate the average rental yield charts, with Liverpool, Manchester, Leeds and Newcastle having some of the highest available in the UK.
On the other side, rental yields in the South are a fair bit lower, with rental yields for London property investment sitting at just 4.1% due to the huge average house prices.
London actually has some of the best rental returns UK-wide, with a massive average rent far above the rest of the country. Despite this, though, rental yields are incredibly low.
This low figure is down to the excessive costs of properties in the area, despite London seeing some of the highest rental growth in years. Official statistics from the Office of National Statistics show that rents rose in London by 4% in 2022, the highest annual growth since 2015.
Rental yields can change heavily between postcodes in a city. In L1 in Liverpool city centre, for example, you can find yields of up to 8%.
Meanwhile, a typical rental yield for a property in London’s Kensington and Chelsea area will come in at around 3.3%.
In comparison, this yield is roughly half of what you can find in Liverpool’s city centre.
Generally, the North-West has been at the top of property investors’ lists in recent decades due to a combination of fantastic rental yields and unrivalled growth rates.
This is why it is vital to consider more than just rental yields when evaluating the investment potential of an area. You need to be mindful of growth potential, tenant demand and affordability to make the best investment possible.
For those who want to secure the best rental yields possible for their investment, it’s important to learn about good rental yield areas.
Let’s take a look at some of the top choices for the best places to invest in property in the UK for those who want to find the best rental yields available.
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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 13.17% between November 2021 and November 2022, 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 all the way into 2023, with the city now offering average yields of 6.3%.
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 £184,447 according to the UK House Price Index. That’s nearly £100,000 below the UK average!
The Merseyside city was one of the best cities for rental yields in the UK in 2022, and you can easily find a good rental yield in Liverpool in 2023.
Average rental yields in this city even outrank many countries with the best rental yields in the world.
For example, Germany offers an average rental yield of just 3.12%.
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 £789, according to Rentoo.
Liverpool property prices are famously low compared to most other parts of the UK, with a current average value of £184,447.
You can find property for a lot cheaper than this, too, with our brand-new property The Exchange having units available from £144,950, with a guaranteed NET yield of 6% in an already-completed and tenanted development. This is a rare opportunity for property investors.
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 super fast Wi-Fi.
Providing super fast Wi-Fi is an excellent idea to boost rental income, as it is one of the most important qualities looked for in a rental property.
Those who purchase luxury and more high-end property in Liverpool could benefit from an attractive buy-to-let yield.
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.
The city is right behind Liverpool’s high rental yields thanks to high tenant demand and fast price growth, with an average yield of 6.1%.
Pair these fantastic rental yields with an expected 11.7% 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 £237,280 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 Rentoo, is £1,053 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.
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 Vantage Point property, based in Greater Manchester, ticks these boxes thanks to great transportation links 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.
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How Can I Maximise Rental Yields on a Property?
Now that you understand the basics of rental yields and which cities are worth your investment, let’s take a look at steps to maximising your rental yields.
You can do this in a few ways, but the essential gist is to buy property for as low as possible while maximising your rental income.
Sounds simple, but how do you do this? Here are five simple tips on how to maximise rental yields in your buy-to-let property.
Buy Off-Plan Property at Below Market Value
This sounds like an obvious one, as we all want to buy property for as cheap as possible, but how do you achieve it consistently?
While you can scan property listings for days on end to find the best prices possible, a more time-saving method is to use the services of a property investment company.
If you want to learn more about property investment companies, be sure to check out our guide, but the bottom line is investing through an investment company can save you tonnes of money.
Here at RWInvest, we have lots of off-plan properties, which means huge price savings. Our new development, The Prestige is over 20% below market value for a prime Liverpool city centre location.
By investing through channels like this, you can reduce the cost of property to a minimum. The trade-off is you will have to wait for the property to reach completion if you buy off-plan property.
To understand all the pros and cons of buying off-plan, be sure to click the link above to read all about it.
Raise Monthly Rental Costs with a Rental Valuation
To maximise your property’s rental yield, the obvious step to take would be to increase the monthly rental costs before you find your next tenant.
Hire a surveyor to do a rent review, where they’ll assess the current rental market and work out the value of the property.
You could find that in line with market growth, the value of your property may be more than you think.
As a landlord, you can’t just increase your rent on a whim and may be limited to only doing it with your tenant’s agreement. You will also only be able to market your rental prices in line with local rent rises.
This is why it is so important to invest in an area with strong rental demand and a growing rental market to maximise your income.
Update the Property to Add Market Value
If you’re not generating a high enough property yield, it could be that your rental property is in need of an update.
Have a look at the current rental prices of properties in your area, and pay attention to any features they may have which yours doesn’t.
Properties with modern kitchens and bathrooms, up-to-date decor and some kind of outdoor space like a garden, yard or balcony all tend to have higher rental value.
Offer Competitive Qualities
There are certain things you could offer your tenants which may make your property more appealing.
One example could be to include stylish furniture for tenants to use, along with state-of-the-art white goods and fittings.
Another good idea could be to make your property pet-friendly. Small things can go a long way in boosting the rental value of your property.
Ever since the COVID-19 pandemic, in-demand qualities in property have changed a lot due to lockdown measures making people re-evaluate their homes.
Research from estate agents Benham and Reeves has found that fast broadband, outside space and nearby green areas like parks are the three most central demands for tenants.
It’s a good idea to consider these aspects when looking at properties.
You should also keep in mind the kind of tenants you are targeting.
A student, for example, would want a drastically different property than a family of four, so keep these intentions in mind when deciding what qualities to include in your property.
Look for the Best Units
If you haven’t bought an investment property yet, or you’re looking for a new investment to add to your property portfolio, keep in mind quality when searching for your next purchase.
With off-plan developments, you will often be able to cherry-pick the best units.
Apartments with balconies, spacious layouts and modern designs tend to make a good investment as they generate the best rental yields.
Focusing on property developments with luxury facilities such as an onsite gym or communal garden is also another great tip.
Properties with facilities like these are naturally higher in rent.
They’re also hugely in demand right now, with more tenants seeking qualities like gardens in their rental property due to COVID-19 and the rise of working from home.
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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 of 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!
FAQ’s
Generally, 5% and above is considered a good rental yield. Anything under this, such as 3%, and you’ll struggle to make any real returns on your investment. For the best rental yields in the UK, you should be aiming for higher buy-to-let returns, such as 6% or 7%.
Any yields between 5% and 8% are considered acceptable, although it is ideal to find returns of 6% 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.
The current average rental yield in the UK is around 3.63%. You can find much higher yields in cities like Liverpool and Manchester, however, where properties are more affordable and tenant demand is high.
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.
John Brady
John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
