Property Investment
Rental Yield vs ROI: Which Number Actually Tells You If a Deal Works?
7 min read · Editorial draft · awaiting source-backed owner review
Listings and sourcing packs often quote a headline yield. On its own, that figure says little about what you will actually earn. Understanding the difference between yield and return on investment helps you compare deals on equal terms.
Gross yield
Gross yield = annual rent ÷ purchase price × 100. It is quick and useful for screening, but ignores every cost and how the purchase is financed.
Net yield
Net yield = (annual rent − annual running costs) ÷ total acquisition cost × 100. Include management, insurance, maintenance, compliance, service charges and an allowance for voids. Total acquisition cost should include purchase taxes, fees and initial works — not just the price.
Cash-on-cash return
If you use a mortgage, what matters to you is the return on the cash you actually put in. Cash-on-cash = annual pre-tax cash flow (after mortgage payments) ÷ total cash invested × 100. Leverage can raise this figure — and can also turn it negative when interest rates rise.
Return on investment (ROI)
ROI looks at the overall gain relative to what you invested over a period, and may include capital growth, mortgage repayment and the costs of selling. Because it depends on assumptions about the future, treat any ROI projection as a scenario rather than a forecast.
Common pitfalls
- Comparing one deal's gross yield with another's net yield
- Using an optimistic rent rather than evidence from comparable lets
- Leaving out voids, maintenance reserves or tax
- Assuming capital growth that local evidence does not support
- Ignoring regional differences — yields and growth vary widely across the UK
A sensible approach
Screen with gross yield, decide with net yield and cash-on-cash, and treat ROI projections as a range of scenarios. Pair this with a thorough cost model from our buy-to-let costs guide and a proper due diligence process.
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