Gross yield vs net yield is one of the most commonly searched, and most commonly misunderstood, comparisons in property investment. It sits at the top of a brochure, headlines a Gross yield vs net yield is one of the most commonly searched, and most commonly misunderstood, comparisons in property investment. It sits at the top of a brochure, headlines a marketing email, and gets quoted confidently on a call. The trouble is, yield on its own tells you very little unless you know exactly what’s being measured, and most figures being circulated are gross, not net.
Understanding the difference between gross yield and net yield isn’t just a technical exercise. It’s the difference between comparing developments accurately and comparing them on a number that’s been chosen because it looks good.
Gross yield is the simplest calculation in property investment, and the easiest to misuse. It’s calculated as:
Gross Yield = (Annual Rent ÷ Purchase Price) × 100
For example, a property purchased for £200,000 generating £1,000 a month in rent (£12,000 a year) produces a gross yield of 6%.
That’s the full calculation. Nothing is deducted, no costs, no void periods, no fees. It’s a useful figure for a quick comparison between properties, but it isn’t a measure of what you’ll actually receive as a return, and it’s the number most commonly used in marketing because it’s the highest one available.
Net yield takes the same starting point, annual rent against purchase price, but deducts the running costs involved in actually holding and letting the property. The formula is:
Net Yield = ((Annual Rent − Annual Costs) ÷ Purchase Price) × 100
The costs that should be factored in include:
There is no single, universally accepted definition of net yield. Some investors and institutions calculate it before finance costs, treating mortgage interest as a separate consideration entirely. Others, including us, include it, on the basis that it’s a real cash cost for most buy-to-let purchases. Neither approach is wrong, but it’s worth knowing which one you’re looking at whenever a net yield figure is quoted to you, since the gap between the two can be substantial.
Once running costs are factored in, net yield (before financing) is typically 1-3 percentage points lower than the gross figure quoted alongside it. Once mortgage interest is added on top, the gap can be considerably larger, as the worked examples below show.
Take a two-bedroom apartment purchased for £250,000, achieving £1,300 a month in rent (£15,600 a year), bought with a typical buy-to-let mortgage at 75% loan-to-value (a £62,500 deposit) on an interest-only basis at 5%.
Gross yield: £15,600 ÷ £250,000 × 100 = 6.24%
Now factor in realistic annual costs. We’ve used a conservative maintenance estimate here of £1,000 a year, reflecting a newer apartment with fewer repair needs, older properties, or houses rather than flats, should budget for considerably more:
Net yield: (£15,600 − £13,947) ÷ £250,000 × 100 = 0.66%
That’s the real gap between gross yield vs net yield in practice: an advertised 6.24% gross yield can shrink to well under 1% once a realistic mortgage is factored in alongside running costs. This isn’t a sign the investment doesn’t work, it’s the reason rental yield alone is the wrong metric to lean on once leverage is involved. At this level of gearing, the case for the investment rests far more on capital growth and total return over the holding period than on rental income margin in the early years, which is exactly why those figures matter more than yield on its own, covered below.
A second example shows the same pattern at a different price point. A one-bedroom apartment purchased for £188,000, achieving £950 a month (£11,400 a year), with a 75% LTV mortgage (£141,000 loan) at 5% interest, produces a gross yield of 6.06%. After management fees (12%, £1,368), service charge (£1,100), insurance (£250), a conservative maintenance estimate of £800, and mortgage interest (£7,050), total annual costs come to £10,568, leaving a net yield of roughly 0.44%, before any capital growth is factored in.
Investors putting down a larger deposit, or buying in cash, will see a meaningfully stronger net yield than these examples, since the mortgage interest line is the single biggest cost in both calculations. The figures above use a 75% LTV mortgage specifically because it’s the most common structure for buy-to-let purchases according to UK Finance lending data, but it’s worth running your own numbers based on your actual deposit and mortgage terms rather than relying on either of these as a direct read-across.
Void periods, the weeks a property sits empty between tenancies, are a standard cost in most net yield models, typically 4-8 weeks a year. We don’t build a void allowance into our own figures, because the developments we select are chosen specifically for strong, consistent rental demand, proximity to transport, employment, and regeneration, rather than areas where finding a tenant is a genuine risk. That’s a judgement based on location fundamentals, not an assumption that void periods never happen anywhere. It’s worth asking any provider whether their figures include a void allowance, and if not, why not, since the answer should be based on real demand evidence for that specific location, not simply left out to make the number look better.
The examples above use standard assured shorthold tenancy (AST) rent, the model most net yield calculations default to. It’s a fair baseline for comparison, but it isn’t the only route available on many of the developments we work with, several of which sit in locations strong enough to support short-term letting (STL) as an alternative.
Taking the same one-bedroom apartment from the example above, purchased for £188,000, at a modest illustrative nightly rate of £115 and 80% annual occupancy (292 nights let), gross short-term let income comes to roughly £33,580 a year, considerably higher than the £11,400 a year achievable on a standard AST. After a 45% deduction to cover management, cleaning, platform fees, and utilities, that leaves net STL income of approximately £18,470. Deducting the same service charge, insurance, and maintenance costs used earlier, plus mortgage interest on the same 75% LTV structure, brings total annual costs to roughly £9,200, leaving a net yield of approximately 4.93%, even after a mortgage.
In some markets, short-term letting can materially improve returns, although higher income is accompanied by greater operational complexity, fluctuating occupancy across the year, and local regulatory considerations that vary by council area. It isn’t a straightforward substitute for AST income everywhere, and the AST-based maths above remains the more conservative baseline every investor should understand first. Where STL is genuinely viable, though, it’s a meaningful part of the picture that a gross yield figure alone will never show you.
Even net yield, done properly, only tells you about income. It says nothing about what happens to your capital.
Two figures matter more than yield alone when you’re assessing a genuine investment case:
Annual return on capital invested. This looks at your net rental income as a percentage of the actual cash you’ve put in, not the full purchase price. If you’ve invested a 20% deposit rather than the full purchase price, your cash-on-cash return will look very different to your yield figure, and it’s usually the number that better reflects your actual return on the money you’ve committed.
Total return of capital invested over a holding period. This combines net rental income with capital growth over time, typically viewed across a 5-year window for off-plan property given completion timelines and the period needed for a development to bed in. A property with a modest yield but strong capital growth can meaningfully outperform a higher-yielding property in a stagnant area once you look at total return rather than income alone.
This is a distinction backed up by wider market data too. Recent analysis of the UK’s rental market shows a clear divergence between markets that offer strong yield and markets that offer strong capital growth, with few locations offering both in equal measure. Treating yield as the only metric risks missing that trade-off entirely. For more on how capital growth factors into an investment case, see our guide comparing off-plan property vs buying on the open market, which covers this in depth.
Property management fees, service charges, and mortgage costs are not hidden information, but they’re routinely left out of headline figures because the resulting number is simply less impressive. A development marketed on a clean 8% gross yield is a stronger sales line than one presented with a realistic 1% net figure, even though the second number is the one that actually matters to your bank balance.
To be transparent, we quote gross yield in our own marketing too, it’s standard practice across the industry, and it’s the figure that allows fair, like-for-like comparison between developments before costs specific to each one are applied. The issue isn’t using gross yield, it’s stopping there. Gross yield as a headline is reasonable. Gross yield as the only figure you’re ever shown is not.
This is where due diligence matters as much as the numbers themselves. Understanding a provider’s methodology, and asking directly whether a quoted yield is gross or net, is a reasonable and necessary question, not an awkward one. It’s also worth understanding how tax applies to rental income and mortgage interest specifically, since the rules around finance cost relief have changed significantly in recent years, HMRC’s guidance on renting out a property is the definitive source.
At Providence Wealth, every discovery call includes a full run through of the actual figures for a specific unit, not a generic brochure percentage. That means gross yield, net yield after realistic costs, cash-on-cash return based on your actual deposit, and a year-by-year projection of total return over a five-year period.
Very few providers in this space run this level of detail live on a call. Our view is that if you’re being asked to reserve a property, you should know precisely where you stand financially before you do, not after.
What is a good rental yield in the UK?
Rental yields vary considerably by region and property type. According to UK Finance, the average gross buy-to-let rental yield across the UK was 7.15% in Q3 2025. Net yield, after costs and any financing, is typically several percentage points lower than this figure.
What’s the actual difference between gross and net yield?
Gross yield is annual rent divided by purchase price, with no costs deducted. Net yield deducts the running costs of owning and letting the property, management fees, service charges, insurance, maintenance, and, depending on the definition used, mortgage interest, before dividing by purchase price.
Does net yield include mortgage payments?
It depends on whose definition you’re using. There’s no universally agreed standard. Some calculations include mortgage interest as a cost, others exclude it and treat net yield as a pre-financing figure. This article includes mortgage interest throughout, since it’s a genuine cash cost for most buy-to-let investors.
What is cash-on-cash return, and how is it different from yield?
Cash-on-cash return measures your net income against the actual cash you’ve invested (your deposit and associated costs), rather than against the full purchase price. For a leveraged purchase, this figure is usually more meaningful than either gross or net yield, since it reflects the return on the money you’ve actually put in.
Should I compare properties on gross yield or net yield?
Gross yield is useful for a quick, like-for-like comparison across properties, since it strips out variables like financing structure and management costs that differ between buyers. Net yield, cash-on-cash return, and total return are what determine whether an investment actually makes sense for your circumstances, and should be reviewed before any reservation is made.
Gross yield is useful for comparing properties quickly. Net yield tells you what the investment is actually producing. Cash-on-cash return tells you how efficiently your money is working. Total return tells you whether the investment is genuinely worth making. Good investors understand all four, not just the one that happens to be printed on the brochure.
If you’d like to see how these figures apply to a specific development, book a discovery call and we’ll run the real numbers with you.
Figures shown in worked examples are illustrative and for explanatory purposes only. Actual yields and returns vary by property, location, and market conditions, and should always be treated as forecasts rather than guarantees.
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