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Landlord Advice

How Is Rental Yield Calculated?

February 10, 2020

Rental yield is one of the most important areas to consider when looking to buy a property and let it out. This calculation helps landlords determine if a property is a good investment. No matter whether you’re a new landlord, an accidental landlord or an experienced landlord, it’s essential to know how to calculate rental yield.

Here we’ll discuss what is rental yield is, how rental yield is calculated, plus look at the best rental yields in London and the rest of the UK.

How is rental yield calculated?

But first, what is rental yield? Rental yield is the financial return you are estimated to achieve on a specific rental property. 

To work out rental yield, simply divide the annual rental income of the property by the total value of the property, which typically includes the initial purchase price and renovations you’ve made and need to make in the future. Then multiply that number by 100 to make the yield a percentage.

If you’re estimating a yield for a property you haven’t bought yet, it’s important to do your research to find out what you realistically could rent it out for. Look at the average rents in the area and think about factors that impact the cost of rent, such as proximity to local amenities and transport links. You can also use our instant valuation tool to get an up-to-date rental valuation in any postcode in London.

Gross yield vs net yield

The gross yield and net yield can be calculated for any property. The net yield takes annual running costs and other expenses into consideration, which is subtracted from the annual rental income. Gross yield doesn’t take this into account and just calculates the yield based on annual rental income and the value of the property. 

Annual rental income / total value of property x 100 = gross yield

Note: Gross yield is often used as a factor by mortgage lenders when considering the affordability of buy-to-let mortgages

To get a full picture of how rental operating costs will impact your profit and yield, calculate the net yield by deducting all of the necessary expenses from your rental income, including:

  • Insurance premiums
  • Maintenance and repairs
  • Ground rent
  • Void periods
  • Management fees
  • Mortgage payments

Once you subtract the annual operating costs from the rental income, divide that number by the total value of the property and then multiply it by 100 to get the net yield.

Annual rental income – annual operating costs / total value of property x 100 = net yield

Related: The New Buy-to-let Refurbishment Mortgage

The Portico rental yield calculator

At Portico, we have a buy-to-let London rental yield map that’s updated on a daily basis. We analyse property prices and data from several hundred estate agents across London. We combine the results of data collected throughout the past three months and compare this with our own internal company data.

The methodology for this real-time street-level rental yield map or rental yield calculator provides us with enough data to make statistically reliable assessments of the median sale price against the median rental price for varying types of property in areas across London. In the map, we have covered yields in the majority of areas within zones 1 to 6.

Click on the map on the right to check out our rental yield map and browse London’s rental yields. This helps landlords and investors look at the granular data within each borough to find the best areas to invest – even down to postcode or street level. 

If you’d like more information on rental yields or where to invest, give Portico a call on 020 7099 4000.!!!!

What is a good rental yield?

Before we discuss what is a good rental yield, let’s have a look at what’s going on in the London private rental sector. 

Currently, rental stock is down 25-30% year-on-year. This is due to a couple of factors:

  • Fewer new landlords are entering the market as a result of tougher tax changes
  • An increasing number of tenants are choosing to renew their tenancies

Together these factors result in fewer properties coming onto the market for rent. And due to supply and demand economics, high demand from tenants coupled with a low supply of rental stock has seen rental prices increase over the past year. So, how has this impacted rental yields? Let’s go back in time to 2018.

As a result of economic uncertainty spurred on by Brexit, property prices slightly declined in 2018  but rents held firm, so we saw rental yields increase. As the rental yield map shows, the majority of London boroughs in 2018 were achieving average yields of 4-5%. The average London rental yield in 2018 was 4.2%. 

Fast forward to 2019, there are only two dark grey boroughs achieving sub 3.5% rental yields - Westminster and Kensington and Chelsea. All the other London boroughs either fall into yellow (4-5% average rental yields) or pink (5-6% average rental yields). The average yield in the capital at the moment is 4.5%, which is considered a very good rental yield for London. 

As a general rule of thumb for the whole of the UK, a rental yield of 7% or higher is ‘very good’, though for London, a rental yield above 4.5% is high.

Top rental yields in London

So, where are the current highest rental yields in London?* Our rental yield map shows that east London dominates, with the following areas offering extremely impressive returns::

  1. South Hornchurch (Havering) - 6.3%
  2. Creekmouth (Barking) - 6%
  3. Upney (Barking) - 5.8%
  4. Wall End (East Ham) - 5.8%
  5. South of Dagenham (Barking & Dagenham) - 5.7% 
  6. Thamesmead (In between Greenwich and Bexley) - 5.5%

Though these areas have the highest rental yields, investors also need to consider capital growth, infrastructure investment and an area’s popularity.

Through extensive market research and our London rental yield data, we recently revealed where to buy in London for 2020. Ilford is one of our top recommendations, with a high average rental yield of 5.5%. 

Barking & Dagenham is also a property hotspot, with a healthy rental yield of 5.4% paired with the lowest average property price on the list at £318,527. Within the borough, high average rental yields of 5.8% can be found around Upney Station. 

Redbridge has an average rental yield of 5%. The area’s highest rental yield can be found in Chadwell Heath with 5.5%. Newham follows with an average rental yield of 4.9%. The East Ham area specifically offers high rental yields, with the specific locale of Wall End boasting an average yield of 5.8%.

Best yields are found in the north of England

The highest yields across the UK can be found in the north of England. Our recent rental yield research showed that Liverpool is a top investment hotspot for landlords, and this is reiterated by TotallyMoney, who recently revealed the best areas for buy-to-let are in Liverpool, the North East of England, and Scotland. 

Our research shows that Liverpool’s L6 postcode leads the way in rental yields with a whopping 13.6% average rental yield. L7 and L6 postcodes in Liverpool also made it in the top 10 with average rental yields of 9.8% and 9.6%, respectively.

A report from specialist lender Kent Reliance also revealed the North West, home to Liverpool and Manchester, has the best average yields in the UK.

Read more: Liverpool property market

Read more: Property for sale Liverpool

Short-let rental yields

Landlords in Liverpool and Manchester are able to achieve extremely high long-let yields, but short-term rental yields have been found to be even higher in both cities. Our research shows that landlords in Fairfield can achieve short-let rental yields of 27.2%!

Five other areas in Liverpool have the potential to achieve short-term rental yields over 20%. Manchester also sees impressive short let yields with the highest in Hulme at 15.1% and 13.6% in Levenshulme.

We are seeing a huge increase in landlords utilising both long and short-term lets in their property portfolio to generate the most lucrative profits. To generate the highest returns, location is key, so it’s important to do your research when looking for a new property to invest in.

If you’re considering putting your property on Airbnb, find out how our Airbnb management service, Portico Host, can help. We have branches in London, Liverpool and Manchester, and will take care of everything, from the set up to the guest communication.

Instant Valuation

Drop the Liverpool team an email at or find out how much you could make on Airbnb in Liverpool, Airbnb in Manchester, or Airbnb in London

Let us invest for you

With our experience as a leading UK sales and lettings agency, we can help you generate higher returns and make the most out of your property portfolio. 

We recently launched Portico Portfolio, a service that will allow landlords to invest smartly in property in a tax-efficient company structure. Essentially, we are using our lettings expertise to create and manage bespoke, northern-based property portfolios for our clients, which are specifically designed to achieve high rental yields. 

Give us a call on 0207 099 4000 if you’d like to learn about this service or our other services.!!!!!

You can also check out our instant valuation tool to get a rental or sales valuation in any postcode in just 60 seconds. It’s a helpful way to check you’re generating the right level of rental income or to determine a lucrative area to invest in.

*According to the Portico interactive rental yield map as of 10/02/20.

We already know how much your rental property is worth. Type your postcode to find out and get an online valuation within 60 seconds.

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