Gross versus net yield
Gross yield is annual rent divided by price. It is the figure agents quote, and it flatters every property equally by pretending ownership is free.
Net yield subtracts running costs and allows for vacancy. A property renting at 1,200 a month on a 250,000 purchase shows a 5.8% gross yield, but after 3,000 in annual costs and three weeks empty, the net yield falls closer to 4.3%. That gap is the difference between the marketing and your bank account.
The costs people forget
Include letting agent fees, which often run 8 to 12% of rent, buildings insurance, maintenance and repairs at roughly 1% of property value annually, service charges or ground rent, and periodic redecoration between tenants.
Vacancy deserves explicit planning. Even a well-managed property typically sits empty two to four weeks a year between tenancies, and assuming full occupancy quietly overstates yield by 4 to 8%.
What yield does not tell you
Yield measures income only, not capital growth. Prime locations frequently show low yields with strong appreciation, while cheaper areas often show high yields with flat prices. Total return combines both, and judging a property on yield alone systematically favours one strategy over the other without saying so.