Gross vs net rental yields - A simple calculation guide for Thai owners

An apartment in London can advertise a 5.4% rental yield and leave you with closer to 3.7% in your pocket. The gap comes from running costs that many first-time owners don’t factor in until the first statement arrives.

In this guide, we explain how to calculate gross vs net rental yield on UK property. We also cover which costs to deduct and how the maths works on a £500,000 London apartment. If you are still at the early research stage, our London property investment guide for Thai buyers covers the wider picture first.

What is gross rental yield?

Gross yield is the quick number. It is the yearly rent divided by the property price, shown as a percentage. Gross yield % = (annual rent ÷ property price) × 100.

For example, an apartment that costs £400,000 and rents for £2,000 a month. This is £24,000 annually. The catch is that it ignores all the costs of owning the property.

What is net rental yield?

Net yield takes running costs off the rent before you divide. It shows what the property earns after you pay the bills. Net yield % = ((annual rent − annual costs) ÷ property price) × 100.

This is the figure that you use for any net rental yield calculation for London property. It is also the most honest way to view London property investment returns after service charges. For apartments, service charges are often the highest costs.

Costs to take off before you reach net yield

You pay service charges to the building’s managing agent. It covers lifts, cleaning, communal areas, building insurance and sometimes a concierge or gym. Buildings with more facilities cost more.

Because most London apartments are leasehold, you may pay a small yearly amount to the freeholder. Newer long leases generally carry no ground rent. Older leases can carry it and some rise over time. Check the lease before you commit.

A letting agent charges a percentage of the rent to find tenants, collect rent, arrange repairs and handle inspections. This is known as management fees.

Landlord insurance. The building insurance usually sits inside the service charge. Cover for your contents, liability and lost rent is separate and comes out of your pocket.

A maintenance reserve sets aside a certain amount of rent each year to avoid unwanted surprises. It can include expenses for failed boilers, repainting walls between tenants, etc. The example below uses 5%.

A gap between tenants is not a bill, but it is rent you don’t collect. Test your numbers with at least one empty month.

Tax. Tax comes after the yield calculation, so the net yield here is before tax. UK income tax applies to your rental profit, not the full rent. Under the Non-Resident Landlord Scheme, your agent or tenant may need to deduct tax from the rent before paying you, unless you have approval from HMRC to receive it in full. If you use a mortgage, the interest is not deducted from your profit as an individual landlord. You get a tax credit instead. You will also need to look at how rental income is treated in Thailand. A tax adviser who knows both countries is worth paying for.

A worked example:

Purchase price £500,000, rent £2,250 a month (these figures are illustrative).

Step 1:

Work out the annual rent

£2,250 × 12 = £27,000

Step 2:

Gross yield

£27,000 ÷ £500,000 × 100 = 5.4%

Step 3:

List the yearly costs

Step 4:

Rent left after costs

£27,000 − £8,590 = £18,410

Step 5:

Net yield

£18,410 ÷ £500,000 × 100 = 3.7% (3.68% before rounding)

An apartment that displays 5.4% on paper earns about 3.7% once the bills are paid. Costs took away 1.7 percentage points.

Now test it. If the apartment sits empty for one month, you lose £2,250 of rent. Net rent drops to roughly £16,160 and net yield falls to about 3.2%

This example leaves out stamp duty, legal fees and any mortgage payments. Some investors add these to the purchase price to get a fuller picture.

How to use these numbers

Always compare net to net. If a listing quotes a yield, ask whether it is gross or net. Look closely at service charges. A development with a high gross yield and a heavy service charge can end up behind a simpler building with a lower headline number.

Then make sure you run the numbers on the real property, not an average. Our London property buying services can help you compare actual rents and service charges across the apartments on your shortlist.

Want your own figures checked before you decide?

You can speak with our Thailand team and we will go through them with you.