Yield is the most quoted figure in property investment and the most inconsistently defined. Understanding which version you are being shown is the difference between comparing two opportunities fairly and comparing nothing at all.
Gross yield
Gross yield is annual rent divided by purchase price, expressed as a percentage. A property bought for £250,000 and let for £1,250 per month produces £15,000 a year, a gross yield of 6%.
It is a useful first filter because it is quick and comparable across markets, but it ignores every cost of ownership.
Net yield
Net yield deducts running costs from the rent before dividing by the price, or by the total capital invested including purchase costs.
The deductions that matter most in UK city-centre apartments are the service charge, ground rent where applicable, letting and management fees, insurance, an allowance for voids, and ongoing maintenance. Mortgage interest is usually treated separately, as it depends on the individual buyer.
On the same £250,000 apartment, a £2,000 service charge, 10% management, and a two-week void allowance would take a 6% gross yield closer to 4.5% net.
Comparing opportunities honestly
When a development quotes a NET figure, ask which costs have been deducted and whether the rent assumption is a valuer's figure or a comparable achieved rent nearby.
Ask for the estimated service charge per square foot. In new build apartments with concierge, gym and amenity space, this is often the single largest deduction.
Finally, remember that yield is only half the return. Capital growth, or its absence, is the other half, and the two often trade off against each other between regions.
This article is general information, not financial, tax or legal advice. Always take independent advice before committing to a property purchase.