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Kimberley's Estate Agents

Rental Yield Calculator

Simple rental yield calculation

Let’s say that you purchase a property for £100,000 and you receive rental income of £500 per month from your tenant.

The yield calculation would be as follows:

£500 x 12 = £6000 per annum rental income.

(6,000 ÷ 100,000) x 100 = 6% Yield

So simply put, Yield is the return on your investment expressed as a percentage of what you put in! (i.e. If you invest £100,000 and you receive £6000 in profit/income per year, so £6000 is 6% of £100,000.)

The above example has been put very simply without factoring in any property maintenance costs/insurance and doesn’t include any mortgage payments.

Let’s look at calculating yield with a mortgage & associated costs

Let’s say you purchase a property for £100,000 but this time you use a buy-to-let mortgage and have to pay for the property insurance and some maintenance costs.

The following are the figures we use to calculate the yield value;

Purchase costs: £1000 (including solicitors fees and insurances etc…)
Deposit at 15%: £15000

Mortgage costs are calculated as follows:

A £100,000 property (purchase price) with a 85% LTV (loan to value) interest only mortgage at an interest rate of 5.5%.

£100,000 – £15,000 = £85,000 mortgage

Monthly repayments are: £85,000 x 5.5% = £4,675 per annum. £4,675/12 = £389 per month.

The gross profit would be;

£500 rent – £389 Mortgage = £111 gross profit per month

£111 x 12 = £1332 per annum.

Now we have these figures we can now calculate the yield value as follows;

Amount invested so far is: £16,000 (deposit + costs)

Annual gross profit is: £1332

(£1,332 ÷ £16,000) x 100 = 8.3% Yield Value on cash amount invested

Looking at these figures you could have bought 6 properties secured on a buy to let mortgages with a £100,000 investment and receive £7,992 in gross rental profits compared to £6000 using the cash to purchase one rental property.

Because you can now buy 6 properties you will own a larger amount of assets (£600,000) so you will also get greater capital gains if the house price was to rise in the future.

Click Here For Rental Yield Calculator

This calculator is to be used as a guide only - do not rely on this for definitive calculations.

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