There is an Openrent blog post on yield here: How to Calculate Rental Yield Using Your Property Value, Rental Income and Costs
And this is what I put on another post:
There are lots of ways of calculating it. Eg gross, net, based on cost, based on value, based on investment.
I tend to look at gross yield when I’m looking at buying a property (gross rent/property price).
But then the true return on investment depends on how much you put in.
Eg if you buy a £100k property but you have a 75% mortgage, you probably end up investing about £30k with fees etc. If you get £500pm rent, then the simplest gross yield is 12x500/100000 =6% (but then there are variances in the calculation here to - eg do you add in the stamp duty etc). If you look at it in terms of return on investment, say you make a profit of £4,000 after costs, that’s a return on investment of 4000/30000 = 13.33%.
But then, 10 years down the line, what’s your gross yield - do you base it on what you paid for the property, or do you base it on the value now. I’d always go for value now because that’s what it would be if you bought it now, so if you’re comparing investments you are comparing like with like.
Also, unless you remortgage upwards, based on value, your return on investment will usually go down over time (even though the rent will go up) because as the value of the property goes up, the amount you have invested in it goes up too. Eg if the value of your house doubles to £200k, you effectively then have £130k invested because if you sold it, that’s what you’d have (assuming an interest only mortgage and ignoring tax to keep it simple - I deduct the tax I’d have to pay if I sold - that usually is enough to put me off selling!). So if your profit also doubles to £8k, your return on investment is then 8/130 = 6.1%.