What does property yield mean?
Yield in Property Investing is a simple calculation used to appraise an investment. For buy-to-let properties, it will be the purchase price of the property divided by the yearly rental income.
3 min read · 27 Mar 2022
This yield is also referred to as the rental yield, as well as the property yield and can be considered a gross annual return on investment.
How is property yield calculated?
For example, a property with a monthly rental of £800, will give us a yearly rental income of £9,600. (800 * 12.) If the property costs £200,000, we divide £9,600 by £200,000 to give us a percentage of 0.048. To get a percentage we multiply this number by 100, giving us 4.8%. This is the gross yield, and is a quick useful metric to appraise your return on investment via rental income. This doesn't account for the value of your property increasing (capital growth). A net yield figure would include other costs such as buildings insurance, mortgage payments, letting agent fees (to find a tenant) etc.
What is a good yield?
A great good yield can be considered 5%+, with 10% being amazing. 7%+ can be considered very good, and something to aim for. In places like London this will generally be out of the picture, as large prices mean yields tend to be lower than elsewhere. There are many other factors to be considered in an investment of course, such as capital appreciate (house price growth).
What is the average rental yield in the UK?
Where does capital growth fit into this?
Capital growth - the increase in value of your property is something to take into account when making an investment. Areas with higher predicted capital growth tend to have lower yields, but this is not always the case - finding properties is both possible and of course desirable.
Is a high property yield always a good thing?
A high yield without the ability to rent the property out is no good for investor - and some areas with high yields, like historically the North East of England, have had a lower rental demand than elsewhere. This can lead to properties having longer gaps between tenants - effecting income, and potentially requiring rental prices to drop to find a tenant. We suggest you take into account the rental demand and yield when considering an investment.
Below is a list of the factors that are often judged when making buying somewhere. The order of these priorities is up to you, but as the rental demand and yield can be more accurately determined than the capital growth, we think you should prioritise these two first. As you cannot rent out a property without demand, we also think the below is the best ordered list of priorities when making an investment,
- Rental demand
- Property rental yield
- Expected capital growth
Where can I find high yielding properties?
You can search property listings sites and do the calculations manually. Property Wisdom updates and calculates yields for you automatically if you wish to save time. High yield property listings is a good place to start.