Rental Yield: What's a Good Return in 2026?

Ask any group of landlords what makes a property a good investment, and "yield" is usually one of the first words mentioned. It's the headline figure quoted in property listings, investment forums and buy-to-let mortgage discussions, and it's often the first filter investors apply when comparing one property against another. But "yield" is frequently used loosely, and the version most commonly quoted, gross yield, can paint a misleadingly rosy picture. This guide explains what rental yield actually measures, the crucial difference between gross and net yield, how to calculate both properly, and what a genuinely "good" yield looks like once you take the whole picture into account.

What rental yield actually measures

At its simplest, rental yield expresses the annual rent a property generates as a percentage of its value (usually the purchase price, though some investors use current market value for an existing property). It answers a simple question: for every pound tied up in this property, how much income is it producing each year? It's a quick way to compare properties of very different prices and locations on a like-for-like basis, which is exactly why it's quoted so often.

The trouble is that "yield" on its own doesn't tell you whether that income is actually going to end up in your pocket. A headline yield figure ignores the very real costs of running a let property, and that's where the distinction between gross and net yield becomes essential.

Gross yield vs net yield: why the difference matters

Gross yield is the simplest calculation: annual rent divided by the property's value, expressed as a percentage. It ignores every cost of ownership entirely, no letting agent fees, no insurance, no maintenance, no void periods, nothing. It's quick to calculate and quick to quote, which is exactly why most online calculators and property listings stop there.

Net yield takes the same annual rent but deducts the costs of actually running the property before comparing it to the purchase price: letting agent fees, buildings insurance, a maintenance reserve, ground rent or service charges, and an allowance for void periods when the property sits empty between tenancies. What's left is a far more honest measure of the income the property actually produces relative to what you paid for it.

The gap between the two can be substantial. A property that looks like it's generating a healthy gross yield can turn out to produce a much more modest net yield once realistic running costs are factored in, and two properties with identical gross yields can have very different net yields if one has higher service charges, a higher void risk, or sits in an area where letting agents charge more. Quoting gross yield alone, without at least acknowledging net yield, is one of the most common ways property investment figures end up looking better on paper than they perform in reality.

How to calculate both: a worked example

Let's work through a simple example: a property bought for £200,000, let at £1,000 per month (£12,000 a year).

That 6% gross figure is the number you'd most likely see quoted. Now let's bring in realistic running costs: say a letting agent fee of around 10% of rent (£1,200 a year), buildings insurance of £300 a year, a maintenance reserve of around 1% of rent (£120 a year), no service charge (it's a freehold house), and an allowance of two weeks a year for void periods (roughly £460 of lost rent). Total annual costs come to around £2,080, leaving net annual income of £12,000 − £2,080 = £9,920.

So the headline 6.0% gross figure becomes roughly 5.0% once realistic costs are accounted for, and that's before any mortgage costs or tax are considered. Our Rental Yield Calculator works out both gross and net yield for you, side by side, from the same set of inputs, something most online calculators don't bother to show.

So what counts as a "good" yield?

This is where a lot of guides give you a single number and move on, but the honest answer is that it depends enormously on where the property is, what type of property it is, and what you're trying to achieve. As a rough guide, city centre flats in expensive areas such as central London often show gross yields that can be in the region of 3 to 4%, reflecting high purchase prices relative to achievable rents, while terraced houses in many northern English towns and cities can show gross yields that are often considerably higher, sometimes well into the high single figures or beyond, reflecting lower purchase prices relative to rents. These figures move over time and vary street by street, so treat any specific number you see quoted, including the ones above, as a general indication rather than a fact to rely on for a real purchase decision.

What matters more than the headline number is understanding why it differs, and what else comes with it. A high yield in a lower-priced area might come with higher tenant turnover, longer void periods, higher maintenance costs on older housing stock, or a less liquid resale market. A lower yield in an expensive area might come with stronger long-term tenant demand, lower void risk, and a market that's easier to exit when you want to sell. Yield is one important measure, but it's not the whole picture, area regeneration plans, local employment trends, transport links and the kind of tenants the area attracts all affect how reliably that yield will be achieved in practice, and how the property might perform over the years you hold it.

Yield and capital growth: a trade-off to think about

One pattern worth understanding is the broad relationship between yield and capital growth. Areas that tend to show higher rental yields are often areas where property prices are lower relative to rents, which can mean the prospects for future price growth are more modest too. Conversely, areas that tend to show lower yields, often more expensive cities and commuter towns, have sometimes seen stronger long-term capital appreciation, which is part of why investors are willing to accept a lower income return in exchange for the prospect of the property itself increasing in value.

Neither approach is automatically "better". Some investors prioritise income today and are happy to accept more modest capital growth; others are willing to accept lower rental income in exchange for the prospect of their asset appreciating over time. Many look for a sensible balance of both. The right answer depends entirely on your own goals, your time horizon, and how reliant you are on the rental income to cover your costs in the meantime. There's no universally "correct" yield to aim for, only the one that fits your own plan.

Why net yield matters even more once mortgages and tax come in

Everything above looks at the property in isolation. In reality, most buy-to-let purchases are mortgaged, and that changes the picture significantly. A property that looks perfectly healthy on a gross, or even net, yield basis can turn out to have thin or negative monthly cashflow once mortgage interest payments are added in, particularly for landlords who own personally and are affected by the Section 24 mortgage interest restriction, which can leave a real tax bill that takes a much bigger bite out of actual cash profit than a simple yield figure would ever suggest.

This is exactly why yield should be treated as a useful first filter, not the final word. Before committing to a purchase, it's worth working through the full cashflow picture, mortgage payments, all running costs, and the tax position, to see what's actually left in your pocket each month. Our Buy-to-Let Cashflow Calculator takes you through exactly that, including monthly cashflow, cash-on-cash return and a full monthly breakdown.

Practical ways to improve the yield on a property

Yield isn't fixed at the moment of purchase. There are a number of practical levers landlords can pull, both before and after buying, to improve the income a property produces relative to what's tied up in it:

• Negotiate the purchase price. Yield is calculated against what you actually pay, so every pound shaved off the purchase price improves your yield from day one. Properties that have been on the market a while, need cosmetic work, or are being sold by motivated sellers can offer room to negotiate.
• Reduce void periods. Every week a property sits empty is a week of lost rent that drags down your net yield. Pricing the rent realistically for the local market, maintaining a good relationship with your letting agent, and keeping the property well-presented all help minimise the gap between tenancies.
• Keep letting agent fees under control. Fees vary significantly between agents and regions. It's worth comparing what different agents offer, including whether you need full management or just tenant-find, since this can make a meaningful difference to your net figure over a year.
• Choose the right area, not just the cheapest one. An area with strong, consistent tenant demand, good transport links and steady local employment will generally let more reliably and with shorter voids than a cheaper area with weaker demand, even if the headline yield looks slightly lower on paper.
• Review running costs regularly. Insurance, maintenance contracts and service charges are all worth reviewing periodically rather than letting them roll over. Small annual savings on costs feed straight through into a higher net yield.