Ask ten landlords how they measure their property's performance and nine will tell you gross yield. Annual rent divided by property value, expressed as a percentage. It's the number estate agents quote, portals display, and most landlords use to decide whether to buy or hold.
It's also, on its own, close to meaningless.
Gross yield measures the relationship between rent and asset value. That's it. It tells you nothing about what you actually take home, what your financing costs are, how much of the rent you lose to voids and agents, or — most importantly — what return you're generating on the money you actually deployed.
Two landlords can hold the same property with the same gross yield and have completely different financial outcomes depending on their deposit size, mortgage rate, and running costs. Gross yield doesn't distinguish between them at all.
Net yield improves on gross yield by accounting for running costs — agent fees, maintenance, insurance, voids. It gives you a cleaner picture of what the asset generates relative to its value. Still useful. Still not the number.
The problem with both gross and net yield: they measure return on the full property value, not on your actual capital. If you bought a £250,000 property with a £62,500 deposit, your invested capital is £62,500 — not £250,000. Measuring your return against £250,000 systematically understates or overstates your actual performance depending on your leverage.
Cash-on-cash return (sometimes called return on capital employed, or ROCE) measures your annual net cashflow as a percentage of the total cash you deployed to acquire the property.
Total cash deployed includes:
Annual net cashflow is rent, minus voids, minus agent fees, minus maintenance, minus insurance, minus mortgage payments. What's left is your actual cash return.
"A 5.5% gross yield with a high mortgage rate and significant compliance costs can produce a negative cash-on-cash return. A 4.2% gross yield with a large deposit and low running costs can produce 8%+. The gross yield number tells you nothing useful on its own."
Take a £200,000 property generating £850/month rent (5.1% gross yield).
Scenario A — Higher leverage, current rates:
Scenario B — Lower leverage, same property:
Same property. Same gross yield. Radically different financial reality depending on how the capital was structured.
When mortgage rates were at 2%, the cash-on-cash picture looked very different for leveraged landlords. At 5%+, the mortgage payment consumes a much larger proportion of rent. Many landlords who bought or remortgaged at higher rates are now running at negative cashflow — they're subsidising tenants monthly and betting on capital appreciation to make the numbers work long-term.
That's a strategy. But it should be a deliberate one, with eyes open, not a situation discovered by accident when the remortgage comes around.
The yield calculator in the Tools section has a basic and advanced mode. Switch to advanced and it will calculate your cash-on-cash return properly — inputting your deposit, mortgage rate, mortgage type, all purchase costs, and all running costs. It also shows your break-even rent — the minimum monthly rent needed for the property to be cashflow neutral. That's the number to stress-test against a void period or a rate increase.
If your cash-on-cash return is below 5% and your break-even rent is close to your current rent, you have very little margin. That's when the question of whether to hold or exit becomes worth modelling seriously.
The advanced yield calculator on this site gives you cash-on-cash, net yield, monthly cashflow, and break-even rent in one place.
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