Yield vs Capital Growth - What's the Balance?

The yield of the property tells you the annual return on your investment. The gross yield is calculated by looking at the rental income you receive as a percentage of how much the property cost. Agents fees and VAT can be significant, which is why our Guaranteed Rent scheme is preferred by many landlords.

If your annual rental income is £20,000 and the property cost you £200,000, your gross yield is 10%.

This is a basic example and does not take into account all your costs such as mortgage, repairs, service charges, agents fees etc. Once you take your costs into account, you are left with your net yield.

Remember, many of these costs can be offset against tax, so it is worth speaking with an accountant.

Most agents will quote you a market rent, but this is not the rent you will actually receive as it doesn’t allow for the deduction of the agents commission, set up fees, administration costs and VAT. There may also be additional fees during the tenancy, at renewal or for inspections.

You must also allow for void periods where you may not have a tenant.

Solely focusing on achieving the highest possible yield by setting a high rent on a property may be counter-productive. It may prove harder to rent the property risking costly void periods. With our Guaranteed Rent scheme, void periods and fees are something for other investors to worry about as we don’t charge fees and pay your rent even when there is no tenant.

Gross Income – Costs = Net Income

Net Income ÷ Purchase Price x 100 = Net Yield

Capital growth

This is simply the increase in value of your property since you bought it, expressed as a percentage.

Sales Price − Purchase Price = Increase

Increase ÷ Purchase Price x 100 = Capital Growth

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