Understanding rental yield and return on investment (ROI) is essential for any landlord who wants to run a profitable property portfolio. These figures don’t just reflect your income — they help you measure risk, compare investments, and make informed decisions about growing or exiting your buy-to-let assets.
In this article, we’ll guide you through how to calculate rental yield and ROI, explore what makes a ‘good’ return, and share practical strategies to maximise your property’s performance in today’s market.
Related: Your guide to understanding rental yields
Is being a landlord worth it?
Yes, rental demand remains strong across the UK. According to the ONS, private rents rose by 9.1% in the 12 months to November 2024, the highest annual growth on record. By May 2025, the average UK monthly rent reached £1,339, up 8.7% year-on-year.
This sustained demand means landlords can still achieve healthy returns. However, costs such as mortgage interest, repairs, and taxation mean you need to know your numbers and optimise wherever possible.
What is rental yield?
Rental yield is the percentage return you earn annually from your property’s rental income, relative to its value. There are two types:
- Gross rental yield is calculated before deducting any costs.
- Net rental yield provides a more realistic picture of profit after expenses like insurance, mortgage interest, repairs, and management fees.
How to calculate gross rental yield
Multiply your monthly rent by 12 to get the annual rental income. Then divide that figure by the property’s current market value (or purchase price), and multiply by 100.
Example:
£1,000 monthly rent × 12 = £12,000 annual income
£12,000 ÷ £200,000 = 0.06 × 100 = 6% gross rental yield
How to calculate net rental yield
Start with the annual rent, subtract annual expenses, then divide the result by the property’s value and multiply by 100.
Example:
Annual rent = £12,000
Annual expenses = £4,000
Net yield = (£12,000 – £4,000) ÷ £200,000 × 100 = 4%
What is ROI?
Return on investment (ROI) measures the overall profitability of your rental property relative to the money you invested, including deposit, fees, and renovations. Unlike rental yield, ROI also factors in capital appreciation and financing.
How to calculate ROI on a rental property
To calculate ROI, start by working out your annual rental income, then deduct all yearly costs such as mortgage payments, insurance, maintenance, and management fees. Divide the resulting net profit by your total cash investment in the property, and multiply by 100 to express it as a percentage.
Example with mortgage:
Cash invested = £150,000
Net annual profit = £12,000
ROI = £12,000 ÷ £150,000 × 100 = 8%
Example without mortgage:
Cash invested = £400,000
Net profit = £22,000
ROI = £22,000 ÷ £400,000 × 100 = 5.5%
Why rental yield and ROI matter
Rental yield and ROI help you assess the financial performance of your property. While yield focuses on rental income relative to value, ROI gives a broader picture, including how much you put in and what you’ve earned back.
These metrics help landlords to:
- Compare properties before purchasing
- Monitor portfolio performance
- Decide whether to hold, refinance, or sell
Used together, they are vital for long-term strategy and short-term decision-making.
How to maximise your rental yield
Rental yield can be improved by increasing income, reducing costs, or both.
When looking to maximise rental yield, location is key. Many of the top-performing areas are found in northern England, where places like Sunderland (SR1), Bradford (BD1), and Leeds (LS3) have recorded yields exceeding 8.5%. In 2025, cities such as Liverpool, Manchester, and Leeds continue to stand out as strong options for buy-to-let investors.
Other locations, including Birmingham, Nottingham, and Newcastle, also present appealing prospects for landlords. Additionally, parts of Scotland and the North East are delivering promising returns, though it’s important to evaluate individual neighbourhoods carefully within those regions.
Related: The impact of inflation on UK rental prices in 2025
Consider properties near universities or large employers, and weigh up the benefits of turning your rental into a house in multiple occupation (HMO) to boost income per square foot.
Adding value always helps. Furnish strategically, redecorate periodically, and ensure strong kerb appeal. The more desirable your property is, the less time it’s likely to remain vacant and the higher the rent it can command.
Finally, control your expenses. Look for competitive insurance deals, switch utility providers regularly, and perform preventative maintenance to avoid large repairs.
What is considered a good ROI for landlords?
A good ROI – or return on investment- for a UK rental property is typically between 5% and 8%. Anything above that is considered excellent, though results vary widely based on location, strategy, and how the property is financed.
Cash-purchased properties tend to offer lower ROI than mortgaged ones because your cash outlay is higher. However, mortgage repayments reduce your monthly profit and come with risk during interest rate rises.
Always measure ROI against your goals. Are you aiming for high short-term cash flow or long-term capital growth? A lower ROI in London may still make sense if the property is likely to rise in value over time.
How to improve ROI on your buy-to-let investment
To increase ROI, focus on both the income and cost sides of the equation.
- Refinance: Shop around for better mortgage rates when your fixed term ends.
- Upgrade smartly: Modern kitchens and bathrooms can raise rent and tenant appeal.
- Review rents annually: Make sure your rental price keeps pace with market rates.
- Plan for capital growth: Invest in up-and-coming areas to benefit from future value increases.
What types of properties deliver the best ROI?
Some property types consistently perform well for ROI-conscious landlords:
- HMOs: Higher income from multiple tenancies, but require more management.
- Student lets: Stable demand in university towns like Nottingham or Sheffield.
- Flats in regeneration zones: These may offer both yield and capital growth potential.
- Northern cities: Property values are more affordable, and rental returns often exceed southern counterparts.
Key takeaways for landlords
Understanding and actively managing your rental yield and ROI is key to succeeding as a landlord in the UK. With rental prices continuing to rise and demand for quality housing remaining strong, now is an ideal time to fine-tune your portfolio.
Martin & Co is here to help you analyse returns, source high-yielding properties, and manage your investments effectively. Whether you’re starting or scaling up, our expert team can guide you toward smarter decisions and stronger returns.
Maximise your returns, start your investment journey today with Martin & Co.
Further reading:
Tenant Fees Act explained: What landlords and tenants need to know
How often should landlords conduct property inspections?
Seven mistakes for landlords to avoid
