How to calculate the gross yield on a buy to let property investment.
In order to work out if the property you are looking to purchase is a good Buy to Let investment, one of the most important calculations is the work out the gross yield.
So one important factor to workout if you have made a great purchase is how to calculate the gross yield on a buy to let property investment.
A simple definition of the gross yield on a buy to let rental property is the percentage return you will make on the money you, our your mortgage lender invests in your Buy to Let rental property.
The simple calculation for Gross Yield is to divide the total annual income by property value and then to multiply by 100.
Or more simply, the gross yield on a buy to let property is the annual income generated by the asset, divided by its price.
So if you have a property that rents for £350 per month, the total annual income is £350 x 12 = £4,200. If the property cost you £45,000, then the gross yield would be £4,200 ÷ £45,000 x 100. This equates to a gross yield of 9.33% which is quite good.
But gross yield isn’t the only thing you need to take into consideration when working out if a potential buy to let property is a investment. A better calculation would be the Net Yield.
Net yield is the annual profit calculation of income minus the costs, that are generated by an asset, divided by it’s purchase price.