What is Yield and how to calculate it
Yield is probably the most important calculation you will need to pay attention to when researching whether a property investment will work financially for you. Yield tells you how much of an annual return you investment is likely to provide. It is calculated by expressing a years rental income as a percentage of the property purchase price.
As an example, if the predicted weekly rental income on a house is £200, times that by 52 weeks to get the estimated annual return (in this case, £10,400). If the house price is £100,000 then the Yield would be 10.4%.
A Yield of 7% upwards is considered a strong Yield. If you manage to secure a property below the asking price, you will notice the Yield will increase. But don’t fall into the trap of over-estimating potential rental income, as this will make your Yield look more attractive then it might actually be in reality.
You can calculate yield on potential rental properties by using websites such as Rightmove to do research on likely rental prices.
Yield calculations like this only show you the Gross Yield. You will need to remove all fees, running costs and repairs to know your Net Yield (and your true profit). Read our guidance on all the fees to consider before buying an investment property.
The good news is that rental income is taxed after expenses such as mortgage interest, fees and property maintenance have been deducted.