Here is a question most landlords get wrong. What yield is your property delivering right now?
You bought a flat for £150,000 five years ago. It is now worth £210,000. The rent has gone from £900 a month to £1,050. Your gross yield based on your purchase price is 8.4%. That looks good. But your running yield based on today’s value is 6%. That is the honest, current number.
Running yield uses the current market value, not the purchase price. It tells you what return a new buyer would get if they bought the property today at its current market value. For you, the original buyer, it is less relevant than your personal return on investment. But if you are considering selling, it is the number a buyer will use to value your property.
Here is why running yield matters for portfolio decisions. If your property has a running yield of 4% and you could sell it and reinvest the equity into a property yielding 7%, selling starts to make sense. The running yield tells you whether your capital is still working hard enough.
It also helps you spot when a market is overheated. If property values have risen faster than rents (which has been the story in most of southern England for the past decade), running yields will have compressed. A running yield of 3.5% on a Portsmouth terrace might mean you are relying entirely on capital growth for your return.
The formula
Running Yield (%) = (Current Annual Rent Received / Current Market Value) × 100
Why this matters
Running yield is the honest measure of current performance. It cuts through your purchase price and tells you what the property is delivering today. Check it annually on every property you own.
Running these calculations before you buy is the difference between a good investment and an expensive lesson. Xelox Properties can help you evaluate any deal.