Buy-to-Let Yield Calculator

How to use this calculator

1. Include buying costs in the outlayStamp duty on an additional property carries a surcharge, and legals and survey add more. Ignoring them flatters the yield by several tenths of a point.
2. Be realistic about voidsTwo weeks a year is a reasonable working assumption for a well-let property. Zero is not — tenancies end, and there is almost always a gap for cleaning and re-letting.
3. Do not omit maintenanceA common convention is to allow around 1% of property value a year. Boilers fail, decoration wears and appliances need replacing whether or not you budgeted for them.
4. Read net yield and cash-on-cash separatelyNet yield measures the property. Cash-on-cash measures your return on the money you actually committed, which gearing changes substantially.

Why gross yield flatters

Gross yield is the number in every agent's particulars, and it is the least useful figure in property investment.

It divides annual rent by purchase price and stops there. It assumes the property is let for all fifty-two weeks, that it costs nothing to run, and that acquiring it cost nothing beyond the price. None of those is true.

Net yield corrects all three. It deducts a realistic void allowance, deducts the actual costs of running the property, and divides by what you genuinely spent including stamp duty and legal fees.

The gap between the two is consistently around two to three percentage points, and on a modest gross yield that is most of the return. A property advertised at 6% gross commonly nets around 4%, and one advertised at 4% gross can net barely 2% — which is where the arithmetic stops working against the alternatives.

The reason the difference is so large is that running costs are a fixed proportion of rent rather than of value. Management at 10%, plus maintenance, insurance and voids, routinely absorbs 20% to 25% of rent received. That comes straight off the top of a yield that started at five or six.

Finance is deliberately separate from both figures. Net yield measures how the property performs; how you paid for it is a different question. Keeping them apart lets you compare two properties on their merits without the comparison being distorted by different deposits.

Cash-on-cash return then answers the financing question: what did the money you actually committed return? Gearing raises that number when the property yields more than the borrowing costs, and turns it sharply negative when it does not.

Worked example: £200,000 at £1,000 a month

Annual rent fully let: £12,000. Against a £200,000 price, that is a gross yield of 6.00% — the headline figure.

Now the corrections.

Two weeks of void costs £12,000 ÷ 52 × 2 = £461.54, leaving £11,538.46 actually received.

Management at 10% of that is £1,153.85. Maintenance £800, insurance £300, no ground rent. Running costs total £2,253.85, which is 19.5% of the rent received.

Net income before finance: £11,538.46 − £2,253.85 = £9,284.61.

Against total outlay of £208,000 including buying costs, that is a net yield of 4.46%.

So a 6.00% gross becomes 4.46% net — a gap of 1.54 points, and roughly a quarter of the headline return absorbed before finance is even considered.

Now add the mortgage. A £50,000 deposit leaves £150,000 borrowed, and interest-only at 5.5% costs £8,250 a year.

Net income after finance: £9,284.61 − £8,250 = £1,034.61 a year, or £86.22 a month.

Against £58,000 of cash actually invested, that is a cash-on-cash return of 1.78%.

And the interest cover ratio — rent divided by interest — is 139.9%. Most buy-to-let lenders stress-test at 125% to 145%, so this sits inside the range but without much room. A rate rise to 6.5% would take interest to £9,750, cover down to 118% — below what most lenders accept — and flip the monthly figure from £86 profit to a £39 loss.

That sensitivity is the honest lesson. At current rates a geared buy-to-let generates a thin income return, and the case rests substantially on capital growth rather than yield.

Gross against net across the range

Assuming two weeks void, 10% management, £800 maintenance, £300 insurance and £8,000 buying costs. The proportional gap narrows as yield rises, because the fixed costs — maintenance and insurance — become a smaller share of a larger rent. Higher-yielding areas tend to be lower-value ones, where the same £800 maintenance covers a larger proportion of the property's worth.

Tax, regulation and what this deliberately excludes

Tax is left out because it depends on circumstances this calculator cannot know, but the headline change is worth understanding because it altered the economics of geared buy-to-let substantially.

Full mortgage interest relief was phased out and replaced with a basic-rate tax credit. Rental profit is now calculated before deducting interest, with a 20% credit applied afterwards. For a basic-rate taxpayer the outcome is broadly unchanged; for a higher-rate taxpayer it is materially worse, and a highly geared property can generate a tax liability exceeding its actual cash profit.

Stamp duty on an additional residential property carries a surcharge over standard rates, which is why buying costs on a buy-to-let are substantially higher than on a home. Capital Gains Tax applies on disposal, at residential property rates rather than the lower ones, and must be reported and paid within 60 days of completion.

Ownership through a limited company changes the whole picture — interest becomes fully deductible against Corporation Tax, but extracting profit attracts dividend tax, and mortgage rates for company borrowing are typically higher. Which structure wins depends on your marginal rate and whether you intend to draw the income or retain it.

On the regulatory side, the obligations are considerable and non-optional. A gas safety certificate annually, an electrical installation condition report every five years, an EPC, smoke and carbon monoxide alarms, deposit protection in an approved scheme within 30 days, right to rent checks, and licensing where the local authority requires it — selective licensing schemes now cover many areas, and HMOs have their own regime.

Failure on deposit protection alone can cost up to three times the deposit and blocks a section 21 notice entirely.

Minimum energy efficiency standards currently require an EPC of E or better to let, with proposals to raise that threshold — a genuine capital risk for older stock that this calculator does not model.

And the wider point: yield is only half the return. Capital growth is the other half, and it is the part nobody can calculate in advance.

Assumptions and limitations

• Excludes all tax, which depends on your marginal rate, structure and other income
• Assumes interest-only borrowing, which is the buy-to-let norm but not universal
• Void, maintenance and management figures are estimates that vary widely
• Does not model capital growth, which is the other half of the return
• Does not account for periodic costs such as re-letting fees or inventory checks
• Does not model minimum energy efficiency upgrades, a real capital risk for older stock
• Not financial advice — take professional advice on structure and tax before purchasing

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