Net Rental Yield
The gross rental yield is a good way to make comparisons, however it does not allow for any running costs. The Net Rental Yield of a property can be a better measure of a properties profitability as it takes into account the running costs.
The following formula is used to calculate the Net Rental Yield
Net Rental Yield % = Annual Rent – Running C o s t X 100
Property Value
The example below shows 2 properties with an identical Gross Rental Yield however, when you take into account the running costs, it becomes apparent that property A is more profitable than property B.
Property A
6.9% = £ 6,500 – £ 6 00 X 100
£85,000
Property B
6.3% = £ 6, 500 – £ 1,100 X 100
£85,000
At this point we have not included the cost of borrowing from a mortgage or any applicable tax, as this is individual to each person.