You walk past an estate agent’s window and spot a flat listed at £150,000 with a rental guide of £900 a month. The agent has scribbled ‘7.2% gross yield’ on the particulars. It looks impressive. But what does that number actually mean?
Gross yield is where every property analysis starts. It is the simplest calculation in property investment and the most widely quoted. You take your annual rent, divide it by the property price, and multiply by 100. That is it.
For that £150,000 flat at £900 a month, your annual rent is £10,800. Divide by £150,000. Multiply by 100. You get 7.2%.
Agents love gross yield because it makes every property look good. It ignores every cost that comes with owning a property — management fees, insurance, maintenance, voids, ground rent, service charges. It is the headline number that sells deals.
But here is what matters: gross yield is a filter, not a decision. Use it to quickly compare properties and rule out the obvious duds. If a flat in Portsmouth is quoting 3.5% gross yield while the one next door is quoting 7%, something is worth investigating.
A good rule of thumb for the South Coast: anything below 5% gross is probably a capital growth play rather than a cashflow play. Between 5% and 8%, it is worth a deeper look. Above 8%, you might have found something special, but check why the yield is that high — there is usually a reason.
The formula
Gross Yield (%) = (Annual Gross Rent / Property Value) × 100
A worked example
£900/mo rent on £150,000 property
`(900 × 12 / 150,000) × 100 = 7.2%`
Why this matters
Gross yield is the first number you should calculate on any property. It takes ten seconds. If the number is too low, you do not need to bother running the more detailed calculations. Use it as your first filter and nothing more. The real analysis starts with net yield, which we will cover in the next post.
If you want to know exactly what a property is worth before you make an offer, Xelox Properties can help. We run the numbers so you do not have to.