What Is a Good Return on Rental Property?
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Investing in rental properties is one of the most reliable ways to generate passive income and build long-term wealth.
But how do you know if you’re making a good return on investment (ROI)? Is it just about getting steady rental income, or should you also consider capital growth and running costs?
Many new investors jump into the buy-to-let market without fully understanding rental yield, ROI, and net income—a big mistake.
If you don’t run the numbers correctly, you could find yourself stuck with low rental yields, rising mortgage payments, and barely breaking even each month.
In this guide, I’ll break down exactly what a good return on rental investment property looks like, how to calculate rental yield, and which factors influence rental profitability.
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How Much Profit Should You Make from a Rental Property?
The amount of profit you should aim for on a rental property depends on several key factors—location, property type, financing, and property management costs all play a role.
Some landlords are happy with just covering their mortgage repayments and maintenance costs, while others want to see strong monthly rental income and high ROI from day one.
This is what most UK investors aim for.
These kinds of returns are usually found in higher-yield areas like the North West and North East.
But possible with short-term let purchases.
UK Average Rental Yield in 2024 was between 5% to 8% and if you prefer to look at rental yield, here’s what’s considered good:
Common in London and the South East
This is what most investors aim for.
Usually seen in cities like Manchester, Nottingham, and Newcastle.
Key Takeaway
To achieve consistent returns on your real estate investment, you must find the best location, keep costs low, and attract a large number of renters.
You bought a rental house in Liverpool for £150,000 and are renting it for £900 each month. This means you will earn £10,800 in rent each year.
If you spend £4,800 a year on your mortgage, property management, landlord insurance, and upkeep, your net income is £6,000.
Now, let’s calculate ROI (Return on Investment):
While this might seem modest, strategic decisions—such as choosing high-demand rental areas, optimising property management, and keeping costs in check—can significantly enhance profitability.
Additionally, capital appreciation over time can further boost overall returns.
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How to Calculate Rental Yield?
Calculating rental yield isn’t rocket science, but getting it wrong can seriously mess up your numbers. Some landlords overestimate rental income or forget key expenses, which leads to misleading returns.
Gross Rental Yield Calculation
Gross yield is the simplest way to measure returns—it looks at the rental income before expenses.
- Property Price: £180,000
- Monthly Rent: £900
- Annual Rent: £10,800
This is a decent gross rental yield, but it doesn’t show the full picture.
Net Rental Yield Calculation
Net yield is more accurate because it includes expenses like mortgage payments, maintenance costs, insurance, and letting fees.
- Annual Rent: £10,800
- Annual Costs (Mortgage, Maintenance, Insurance): £2,720
- Net Income: £8,080
This is closer to reality—many landlords forget to factor in costs, which makes gross yield look better than it really is.
Why Net Yield Matters More
One investor I know bought a high-yield property (on paper) that had 8% gross rental yield. Sounded amazing—until he factored in:
- Letting agent fees (10% of rent)
- Service charges (it was a leasehold flat)
- Ongoing maintenance (boiler issues galore)
After running the numbers properly, the net rental yield was closer to 5%.
Key Takeaway
Before making an investment, always calculate the gross and net yields.
But don’t worry if all of these formulas seem complicated—you’re not alone!
Many property investors struggle to calculate rental yields when mortgage repayments, maintenance expenditures, and management fees are included.
To make life easier, we’ve got a simple solution—our Mortgage Calculator.
Just put your property price, monthly rental income, and annual costs, and it will instantly calculate both your gross and net rental yield.
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What Are the Best Cities for Rental Yields in the UK?
Some UK cities consistently beat the national average in terms of rental yields, thanks to robust tenant demand, low property prices, and thriving local economies.
While London and the South East tend to offer lower rental yields and capital growth, cities in the North and Midlands provide higher rental income and growth relative to property prices, making them attractive for buy-to-let investors focused on cash flow.
Top UK Cities for Rental Yields in 2025
Nottingham
- Nottingham
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Liverpool
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Manchester
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Sheffield
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What Costs Should Your Rental Income Cover?
Many landlords focus on rental yield and ROI, but underestimating running costs can quickly erode profits. A rental property should generate enough income to cover all essential expenses while still leaving room for profit and unexpected costs.
Mortgage Payments (if applicable)
For landlords with a buy-to-let mortgage, this will likely be the biggest expense. With changing interest rates, it's important to keep mortgage payments affordable. By selecting a mortgage with a lower loan-to-value (LTV) ratio, such as 60% instead of 75%, you can increase your cash flow and reduce mortgage expenses.
Use our buy-to-let mortgage tool to help plan your investment and figure out your mortgage payments.
Property Management Fees
If you don’t want to deal with tenants, repairs, and rent collection, you might hire a property management company. However, letting agent fees typically range from 8-15% of monthly rent. Self-managing a property can save money, but it requires time and effort. If you own several properties, hiring a professional property management company is a good investment.
Maintenance & Repairs
Every property needs upkeep, and the cost depends on its age and condition. Older homes usually need a lot of repairs, such as fixing the heating system, addressing electricity problems, and taking care of regular wear and tear. This can cost between £1,500 and £2,500 each year. New-build apartments, on the other hand, are much easier to handle. Thanks to current features, energy-saving systems, and warranties, maintenance costs can be as low as £500 to £1,000 each year. This means renters will have fewer surprise costs and less trouble.
Insurance Costs (Landlord & Building Insurance)
Standard home insurance isn’t enough for rental properties—landlords need specialist insurance, which usually costs between £150-£300 per year. This covers damage, liability risks, and even loss of rent in certain cases. Some landlord insurance policies also cover boiler breakdowns and emergency repairs, which can help reduce unexpected expenses.
Ground Rent & Service Charges (for Leasehold Properties)
If your property is leasehold, budget for ground rent and service charges, typically £500–£2,000 annually. Location and amenities affect costs; higher fees in luxury projects provide concierge services, gyms, or shared spaces. Less expensive homes pay less fees. Review service charge agreements always since increasing expenses could affect long-term profitability.
Unexpected Costs & Void Periods
Every landlord experiences vacant periods between tenancies. These voids can reduce cash flow, especially if a mortgage is still being repaid. Budget for at least one month’s rent per year to cover void periods and any unexpected repairs or legal fees.
Angel Gardens
Angel Gardens is located in an up-and-coming district of Liverpool. It is in close proximity to two major regeneration projects: the £150 million Project Jennifer and the £5.1 billion Liverpool Waters scheme.
£20k
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Is Buying a Rental Property in the UK Worth It?
With rising house prices, increasing rental demand, and long-term capital appreciation, buying a rental property in the UK remains a popular investment strategy.
But is it still worth it in 2025, given higher mortgage rates and government regulations? The answer depends on location, financial planning, and investment goals.
Tenant demand is at an all-time high as many first-time buyers battle to climb the housing ladder. According to Rightmove, landlords will find it simpler to find tenants fast since accessible rental supply is down by 35%.
Higher mortgage rates (now averaging 5-6% for buy-to- let mortgages) and new landlord tax reforms, however, imply investors must be more savvy.
Low rental yields can lead to cash flow issues if costs aren’t carefully managed.
What Costs Should Your Rental Income Cover?
- UK house prices have risen by over 20% in the last five years (ONS).
- Private rental prices increased by 6.2% in 2023, the fastest growth in a decade (ONS).
- By 2027, rents are expected to rise by 15.9%, hence landlords may find even more money in the next years.
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Buy-to-Let vs. Rent-to-Rent: Which is Better?
Buy-to-let and rent-to-rent are two often used methods of looking at property investment strategies. Both can provide income, but buy-to-let remains the best option for long-term financial growth.
Buy-to-let enables investors to own a real asset that appreciates over time and provides passive rental income, whereas rent-to-rent emphasises short-term cash flow.
6.93%
Average gross rental yield in Q3 2024
Why Buy-to-Let is a Smart Choice
In contrast to rent-to-rent, which relies on leasing someone else’s property, buy-to-let provides actual ownership, financial security, and long-term equity development.
- Builds long-term wealth: Creates long-term wealth since property values have always grown to provide consistent capital appreciation.
- Consistent passive income: A well-located property guarantees consistent rental income with little effort.
- Equity growth: As the mortgage is repaid, the investor gains more ownership of the property, increasing net worth.
- Flexibility: Investors can sell, refinance, or pass down a buy-to-let property, unlike rent-to-rent agreements.
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Rent-to-Rent: A Short-Term Strategy
Rent-to-rent is often promoted as a low-cost entry into property investment because investors don’t need to buy a property. Instead, they lease a property from a landlord and sublet it for a higher rent—typically as an HMO or short-term accommodation.
No need for a mortgage or large deposit.
If occupancy rates keep high, monthly profits could be more.
Rent-to-rent provides short-term revenue but no equity, property ownership, or wealth-building. Full occupancy requires proactive management.
Buy-to-let boosts equity and sustainability. If one finds high-yield sites and gets a good mortgage, buy-to-let can be successful.
Discover your property’s earning potential with our Buy-to-Let Calculator.
How to Maximise Your Rental Yield & ROI?
Simply buying a rental property isn’t enough—you need to optimise returns by increasing rental income, reducing expenses, and ensuring long-term tenant demand.
Here’s how to get the most from your buy-to-let investment:
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Frequently Asked Questions
Profit margins vary depending on location, occupancy rates, and management efficiency. However, a successful Rent-to-Serviced Accommodation (R2SA) strategy should aim for 20-30% net ROI after accounting for expenses like rent, utilities, cleaning, and booking platform fees.
Yes, buy-to-let remains a strong investment option, particularly in high-yield areas where rental demand is growing. Despite changes in taxation and regulation, investors focused on long-term capital growth and rental income stability can still achieve profitable returns with the right property selection and financing strategy.
Earnings vary depending on location, property type, and financing structure. A well-managed rental property should generate a 5-10% ROI annually, with higher returns in cities with strong rental demand. Properties in London or the South East may yield lower percentages but benefit from higher capital appreciation.
Gross rental yield is calculated before expenses, giving a quick snapshot of potential returns.
Net rental yield factors in costs like mortgage payments, maintenance, insurance, and management fees, providing a more accurate measure of profitability. Investors should always consider net yield when assessing long-term property returns.
To improve profitability, landlords can:
- Refinance to a better mortgage rate to lower monthly payments.
- Self-manage the property instead of using letting agents.
- Increase energy efficiency to make properties more attractive to tenants.
- Furnish selectively to appeal to professionals or short-term renters.
Negotiate service charges on leasehold properties to reduce overheads
Yes, student properties often offer higher yields than traditional rentals. Cities with large universities, such as Manchester, Sheffield, and Nottingham, have a steady demand for student housing.
The timeline for positive cash flow depends on financing, location, and rental demand. Many landlords start seeing returns within the first year, especially in high-yield areas.
However, if a property requires significant renovation or mortgage repayments are high, it may take several years to generate substantial net income.
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