The definition is as follows: Rental yield is what your annual rental income is, as a percentage of the total value of the property. It is used by buy-to-let investors and landlords as a key factor which determines if their property is a ‘good’ investment. It’s also used when calculating the affordability by a lender of a buy-to-let mortgage.
You can calculate rental yield as ‘gross yield’ or as ‘net yield’ depending on whether you factor in the running costs of a rental property. The gross yield is generally the calculation used when speaking to a mortgage lender about a buy-to-let investment.
It’s important to remember, rental yield isn’t the only factor that may help you in your decision to invest in a property. You may also want to look at capital appreciation, this is how much the property increases in value, as a consideration of whether a property is a good investment. In recent years, following the housing price crash of 2007, many property investors have looked to invest in a more steady, but stable rental yield than look to capital appreciation, which is why rental yield has become such a key measure of a property investment’s financial performance.