When investing in a property there are some key calculations that you need to understand and carry out beforehand.


Gross yield is the income return on an investment before expenses are deducted.

Gross rental yield is commonly used when looking at returns, as it is simple to calculate and lets you easily compare properties with different values and rental income.However, it is not wise to base investing on gross yield alone.

Gross yield is calculated by dividing the annual rental income generated by a property by its price.


  • Annual Rent: £10,000
  • Purchase Price:  £200,000
  • Gross Yield = 5%


The Net yield takes into account all the fees and expenses associated with owning a property. Net yield is a more accurate way of calculating the actual yield of a property However, Net Yield is/ also harder to calculate as most costs are variable.

Net yield is calculated by dividing the annual profit (income minus costs) generated by an asset, by its price.


  • Annual rent: £10,000
  • Annual costs: £2,000
  • Annual profit = £8,000
  • Purchase price: £200,000
  • Net yield = 4%

Costs to include when calculating Net Yield:

  • Mortgage payments
  • Property management fees
  • Insurance
  • An allowance for repairs and maintenance
  • An allowance for voids in case the property becomes empty
  • An allowance for advertising the property
  • Service charge and ground rent (if applicable)
  • You can also include stamp duty and conveyancing fees in the purchase price.


ROI measures how much money or profit is made on an investment as a percentage of the cost of the investment. It shows how effectively and efficiently the money you’ve spent (deposit) is being used to generate profits.

ROI is calculated by dividing the annual rental profit (income minus costs) generated by the property divided by the cash (deposit) you put in.


  • Annual rent: £10,000
  • Annual costs: £4,000
  • Annual profit = £6,000
  • Purchase price: £200,000
  • Mortgage used: £160,000
  • Cash invested: £40,000
  • ROI = 15%

The big difference between ROI and Net Yield is that ROI takes into account the cash you actually put into the property rather than the purchase price (which includes the mortgage amount as well as cash you put into the property).

Some points to consider:


It is very important that you know the impact tax can have on your property investments. However as tax is so complicated and varies depending on your personal circumstances it is impossible to factor it into the above calculations.

Capital Growth

The above calculations only take rental income into consideration and not capital growth. Unfortunately, capital growth is nearly impossible to predict from both a financial and time point of view. E.g. a property could grow 5% in 3 years or fall -1% in one year. For this reason, it is advisable not to predict capital growth when carrying out these calculations.


If you are using the above calculations to compare properties (as you should) it is important that you are consistent with the costs you include for all properties. This will allow you to effectively compare different properties to each other. It’s advisable to have a list of costs that you consistently factor in for every calculation. (We’ve given you some suggestions above)

To conclude, there are many calculations you can do to see how good a property deal is.

The simplest and most effective calculations to carry out are listed above.

We believe ROI is the most important calculation to carry out as it allows you to get an accurate measure of how hard the cash you’ve invested will be working.

*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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