Gross yield, net yield, and ROI: what the numbers actually mean

Gross yield

Gross yield is the simplest measure of a property's income potential relative to its price. It ignores costs entirely.

Formula: (Annual rent / Purchase price) x 100

A property costing £130,000 renting for £750/month: - Annual rent: £9,000 - Gross yield: (9,000 / 130,000) x 100 = 6.9%

Gross yield is useful as an initial filter. It tells you quickly whether a property is in the right ballpark. If gross yield is below 6%, the deal will almost certainly not produce positive cashflow after mortgage costs in the current rate environment. At 8%+, there is probably enough margin to cover costs and produce income.

But gross yield tells you nothing about what you will actually earn. Two properties with identical gross yields can have very different net outcomes depending on their running costs, mortgage terms, and void rates.

Net yield

Net yield deducts running costs from rental income before calculating the yield. This gives a much more meaningful picture of actual returns.

Formula: ((Annual rent - Annual costs) / Purchase price) x 100

Running costs to include: - Mortgage interest (not repayment element) - Letting agent fees (8-12% of rent for fully managed) - Landlord insurance (buildings + liability) - Maintenance reserve (typically 10% of rent) - Void allowance (4-6 weeks per year) - Accountancy

Using the same £130,000 property renting at £750/month: - Annual rent: £9,000 - Mortgage interest (5.2% on £97,500): £5,070 - Letting agent at 10%: £900 - Insurance: £350 - Maintenance reserve at 10%: £900 - Void allowance (4 weeks): £692 - Total annual costs: £7,912 - Net income: £9,000 - £7,912 = £1,088 - Net yield: (£1,088 / £130,000) x 100 = 0.84%

The net yield is much lower. This is not unusual. Net yield is rarely impressive. What matters is whether the absolute cashflow is positive and whether the return on your cash deployed is acceptable.

Cash-on-cash return

Cash-on-cash return (also written as CoC return) measures the annual cashflow you receive relative to the cash you have actually put in. It is the most relevant measure for a leveraged investor because it accounts for the fact you did not pay for the whole property out of your own pocket.

Formula: (Annual net cashflow / Total cash invested) x 100

Total cash invested includes: deposit, SDLT, legal fees, and any refurb costs.

Using the same example: - Annual net cashflow: £1,088 - Cash invested: £32,500 deposit + £8,000 SDLT + £3,000 costs = £43,500 - Cash-on-cash return: (£1,088 / £43,500) x 100 = 2.5%

A 2.5% cash-on-cash return is modest. You could get close to this in a savings account. However, it does not account for mortgage paydown (if you are on a repayment mortgage), capital appreciation, or the tax benefits of holding in a limited company.

Cash-on-cash return tends to be more meaningful when you have bought at a genuine discount, when gross yields are high (8%+), or when you have reduced costs through self-management or a lower mortgage rate.

ROI (Return on Investment)

ROI is a broader measure than cash-on-cash. It typically includes both income return and capital return over a period.

Formula: ((Total income received + Capital gain) / Cash invested) x 100

For a 5-year hold on the same property: - Net cashflow over 5 years: £5,440 (£1,088 x 5) - Capital growth at 3% per year: property worth approx £151,000, gain of £21,000 - Total return: £26,440 - Cash invested: £43,500 - 5-year ROI: 60.8%, or about 12% per year

This looks much better than the cash-on-cash return because it includes leverage-amplified capital growth. The risk is that capital growth is assumed, not guaranteed. A flat or declining market changes the maths considerably.

Many investors focus primarily on cashflow rather than projected ROI, because cashflow is real money in your account, while capital growth is paper value until you sell.

Yield benchmarks by UK region

Yields vary dramatically by location. The general pattern is that yields are highest in areas where property prices are lower relative to rental income - typically northern cities.

Approximate gross yield ranges by area (2026): - Newcastle / Gateshead / Sunderland: 7-10% - Bradford / Halifax / Huddersfield: 7-9% - Sheffield / Rotherham: 6-9% - Leeds (inner areas): 6-8% - Nottingham: 6-8% - Liverpool: 6-8% - Manchester (Salford, Eccles): 6-7% - Birmingham (inner suburbs): 5-7% - Bristol: 4-6% - London (most areas): 3-5%

These are rough starting points. Specific streets and property types within these areas vary enormously. A 3-bedroom terrace in a student area may yield 9% while a 2-bedroom flat in the same postcode district yields 5.5%.

The Hotspots table on Proppys shows live rental yield data for 51 specific UK postcode districts, pulled from PropertyData.co.uk. Use it alongside the yield calculator when researching specific areas.

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