Why it matters
What Rental Yield (Gross / Net) means for a landlord
The gross-yield headline agents quote is close to meaningless for a decision, because it ignores every cost that actually eats the return, a "7% gross" flat can be a 2% after-tax reality once management, voids, mortgage interest and the Section 24 credit are applied. The gap between gross and after-tax yield is exactly where over-leveraged landlords get caught, so the figure to underwrite a purchase on is after-tax net, not the advert’s gross. Model it before you offer, not after you complete.
Worked example
How it plays out
A flat costs £200,000 and lets for £12,000 a year, a gross yield of 6%. Agent fees, insurance, repairs and a month empty cost £3,000, so the net yield is 4.5%. After £6,000 of mortgage interest and the tax on the profit, the cash return on the money invested looks very different again.
Common mistakes
Where landlords go wrong
- 01Comparing a gross yield on one property with a net yield on another.
- 02Leaving out empty periods and repairs.
- 03Ignoring mortgage interest and tax.
What to do
A short checklist
- Work out gross, net and after-tax figures for each deal.
- Use realistic allowances for empty periods and repairs.
- Recalculate yields at every remortgage.
