Rental yields - why are they important?

Rental yields are critical measurement tools for all serious property investors.

It should be one of the key tests applied by landlords and investors when evaluating a new investment. Why?

A gross yield measures the amount of income generated from any given capital investment. In the same way as a traditional saver would make any investment decision based on the rate of interest they could obtain. A property investor should only make their decision being fully aware of the yield that they are likely to obtain from their buy-to-let investment.


There are two particular uses for the yields figures. Firstly, a yield can tell a landlord a great deal about the overall investment climate for investment in residential property. This is because it can be used as a measure of relative attractiveness of residential investment against other types of investment. For example if current rental yields of about 5% are to be believed then is that an attractive return for a landlords money compared to an alternative home for their savings such as a savings account, bonds or stocks and shares? This is the fundamental question that a landlord must answer before deciding to invest.

Having decided that residential investment is the preferred asset class. The second use for rental yields is to measure and evaluate potentially competing residential investments.

For example, a landlord evaluating two similar investments in terms of location, etc one residential investment promises a gross yield of 5% the other would generate a gross yield of 6.5%. Most investors would obviously go for the higher yielding property because it's greater income producing qualities.

The difficulty for many investors is that obtaining accurate rental yield data is not easy other than doing their own calculations.

I will look at some of the best sources of rental yield data and evaluate them in a future piece.