There is a yield number that estate agents never mention, solicitors never calculate, and lenders never ask for. It is called true yield, and it is the only number that tells you the actual return on the cash you hand over on completion day.
True yield factors in all your purchase costs: stamp duty, legal fees, survey costs, mortgage arrangement fees, and any other one-off expenses you pay to acquire the property. These costs typically add 3% to 5% to the purchase price of a BTL property. For a £300,000 BTL with the additional dwelling surcharge, stamp duty alone is £11,500.
Let us run the numbers. You buy a £200,000 property with £900 a month rent. Gross yield: 5.4%. Net yield after costs: maybe 3.8%. But your true yield factors in the £6,250 in stamp duty for a second home, the £1,500 legal fees, the £500 survey, and the £1,000 mortgage fee. Your total investment is not £200,000. It is £209,250. Your true yield drops to 3.6%.
That is a nearly 2% gap between the gross yield the agent quoted and the true yield you actually earn. On a million-pound portfolio, that gap represents £20,000 a year in missing income.
True yield is the number that keeps you honest. If your true yield is less than 3% after all costs, you need to ask yourself whether the capital growth prospects justify the investment. In most of the South Coast, the answer is probably yes if you are buying for the long term. But you should know the true yield before you make that call.
The formula
True Yield (%) = (Net Annual Rent / (Capital Value × (1 + Purchaser's Costs %))) × 100
Why this matters
True yield is the number nobody talks about but everyone should calculate. It factors in the real cost of buying and gives you an honest picture of your return. Calculate it before you exchange contracts, not after.
Not sure whether a property stacks up? Xelox Properties offers detailed deal analysis so you know what you are getting into before you commit.