Buy-to-Let Yield: Gross, Net, and Cash-on-Cash Return Explained
Rental yield is the annual return on a property investment expressed as a percentage of its value. There are three versions — gross, net, and cash-on-cash — and they can differ by 3–5 percentage points on the same property. Using the wrong one produces dangerously misleading comparisons.
Gross Yield
Gross Yield = (Annual Rent ÷ Property Value) × 100 Example: £14,400 annual rent ÷ £220,000 property = 6.5% gross yield
Gross yield is useful for quick comparison between properties. It ignores all costs.
Net Yield
Net Yield = ((Annual Rent − Annual Costs) ÷ Property Value) × 100 Annual Costs typically include: - Letting agent fees (8–15% of rent) - Maintenance and repairs (estimate 1% of property value/year) - Landlord insurance - Void periods (1–2 months/year) - Gas safety, EPC, EICR certificates - Accountancy fees
Example Net Yield Calculation
| Item | Annual Amount |
|---|---|
| Gross rent (£1,200/month) | £14,400 |
| Letting agent (10%) | −£1,440 |
| Maintenance (1% of £220k) | −£2,200 |
| Insurance | −£400 |
| Void (1 month) | −£1,200 |
| Certificates + misc | −£350 |
| Net income | £8,810 |
| Net yield | 4.0% |
Cash-on-Cash Return
Cash-on-Cash Return = (Annual Net Cash Flow ÷ Cash Invested) × 100 Cash Invested = Deposit + Stamp Duty + Legal Fees + Renovation This metric measures return on YOUR money, not the total property value. Leverage amplifies both gains and losses.
Cash-on-Cash Example (75% LTV Mortgage)
| Item | Amount |
|---|---|
| Property value | £220,000 |
| Deposit (25%) | £55,000 |
| Stamp duty (additional property) | £8,850 |
| Legal fees + survey | £2,500 |
| Total cash invested | £66,350 |
| Net rental income | £8,810 |
| Mortgage interest (5.5% on £165k) | −£9,075 |
| Net cash flow | −£265/year |
| Cash-on-cash return | −0.4% |
This property looks viable on gross yield (6.5%) but produces negative cash flow at current mortgage rates. Capital growth assumptions are separate.
What-If Scenarios
Scenario 1: Northern city at £120k vs London at £500k
| Metric | Northern city (£120k) | London (£500k) |
|---|---|---|
| Monthly rent | £750 | £2,200 |
| Gross yield | 7.5% | 5.3% |
| Est. net yield | 4.8% | 3.1% |
Scenario 2: Impact of mortgage rate on cash flow
£220k property, 75% LTV, £8,810 net rental income:
| Mortgage Rate | Annual Interest | Annual Cash Flow |
|---|---|---|
| 2.5% | £4,125 | +£4,685 |
| 4.0% | £6,600 | +£2,210 |
| 5.5% | £9,075 | −£265 |
| 6.5% | £10,725 | −£1,915 |
Frequently Asked Questions
→ Model your investment returns with the Savings Growth Calculator
Indicative only. Tax treatment of rental income (Section 24 mortgage interest restriction, capital gains tax) is not included in these calculations. Consult a property accountant or financial adviser.