Gross rental yield compares annual rent with the property price. Cash flow shows what remains after the payments and costs you have included. Use both measures when assessing a buy to let, and state your assumptions so the figures can be checked.
Calculate the gross yield
For a property bought for £350,000 and rented at £1,750 a month, annual scheduled rent is £21,000. Dividing £21,000 by £350,000 and multiplying by 100 gives a gross yield of 6%.
That calculation excludes purchase costs, finance, repairs, vacant periods and tax. It is useful for an initial comparison, but it is not the investor's take home return.
You can also calculate yield on total acquisition cost. If buying costs and initial work bring the total to £380,000, the same £21,000 rent represents approximately 5.53%. Label the denominator clearly so you compare properties consistently.
Build an annual cash flow forecast
The following figures are invented solely to show the method. They are not a forecast for a Nivas Estates property or an indication of available mortgage rates.
| Annual item | Illustrative amount |
|---|---|
| Scheduled rent | £21,000 |
| Allowance for lost rent | £1,000 |
| Management and administration including any VAT | £2,000 |
| Repairs and planned maintenance allowance | £1,500 |
| Insurance and compliance allowance | £700 |
| Mortgage interest | £11,250 |
| Illustrative amount left before tax | £4,550 |
The finance assumption is a £225,000 interest only loan at 5% for a full year. The example assumes no mortgage capital repayment and excludes service charges, ground rent and any other costs not listed. Add those where relevant.
Treat allowances as budgeting provisions. Actual lost rent and repair bills will differ. Ring fencing an allowance helps prepare for a bill; it does not make the bill predictable.
Test a less favourable outcome
At a hypothetical interest rate of 6%, annual interest on the same loan would be £13,500. With the other assumptions unchanged, the example amount left falls to £2,300 before tax.
Now consider an additional repair or a longer interruption in rent. Establish how you would fund that situation without relying on an immediate sale or a guaranteed increase in value.
Check costs beyond the spreadsheet
Verify the likely rent against relevant comparable homes and confirm the property's licensing and management requirements. Ask what repairs are needed now and what may need replacing during your ownership.
Tax treatment depends on ownership and circumstances. Obtain tax advice rather than assume mortgage interest, maintenance provisions or company ownership will produce a particular tax outcome.
Common questions
Is a higher gross yield always a better investment? No. Compare property condition, realistic costs, finance, demand and the cash needed to withstand problems.
Is the amount left before tax my profit? It is only the result of the stated cash flow assumptions. Accounting profit, tax and cash available can differ.
Assessing a rental home? Contact Nivas Estates to discuss rental evidence and management requirements before finalising your figures.
Related reading
- Do you need a landlord licence in Harrow or Brent
- Landlord compliance checklist for letting a home in England
- How to set rent and review it lawfully in England
Sources
Information checked on 26 October 2026. General information for England; obtain advice for your circumstances.