Almost every landlord works out their rental yield exactly once: the day they buy, in a spreadsheet, with round numbers and a good mood. It comes out at 4 %, 5 %, 6 % — and that figure sticks. It’s the number you quote to friends, the one you use to decide whether to buy a second, and the one you think you’re earning.
The problem is that the figure expires the day you write it. Not because it was calculated wrong, but because it describes a year that hasn’t happened yet — and the real year almost never looks like the spreadsheet’s.
To estimate before you buy, the rental yield calculator gives you the day-1 snapshot in a minute. This article is about what happens afterwards: why that snapshot drifts, and which number to look at once the property is actually let.
The day-1 spreadsheet (the optimistic version)
A £250,000 flat, let at £1,200/month. The typical spreadsheet says this:
| Item | Annual estimate |
|---|---|
| Income (£1,200 × 12) | £14,400 |
| Service charge | −£1,800 |
| Insurance | −£300 |
| Maintenance (“just in case”) | −£600 |
| Letting / management (10 %) | −£1,440 |
| Net | £10,260 |
Projected net yield: £10,260 / £250,000 = 4.1 %. A perfectly reasonable number. And a perfectly unreal one, because it assumes three things you won’t deliver: twelve months of rent, zero surprises, and costs that land in round figures.
What actually happens over twelve months
Fast-forward a year. Here’s what happened to the same flat:
- The tenant left in month 8. Between making it presentable and finding the next one, the flat sat empty for 6 weeks. Months collected: 10.5, not 12. Real income: £12,600 (−£1,800).
- The boiler failed (£450) and there was a leak in the bathroom (£500). Real maintenance: £950, not £600.
- A major-works levy landed from the freeholder to redo the entrance: £500. It wasn’t in any cell of the spreadsheet, because levies never are.
Redo the sum with what actually moved through the bank account:
| Item | Actual (12 months) |
|---|---|
| Rent collected (10.5 × £1,200) | £12,600 |
| Service charge | −£1,800 |
| Insurance | −£300 |
| Real maintenance (boiler + leak) | −£950 |
| Management (10 % of rent collected) | −£1,260 |
| Major-works levy | −£500 |
| Real net | £7,790 |
Observed yield: £7,790 / £250,000 = 3.1 %.
Not 4.1 %. It’s 3.1 % — about 24 % less than the spreadsheet claimed, and nothing dramatic even happened. No serious arrears, no eviction, no full refurbishment. Just a normal year for a normal flat.
To be clear, this isn’t the usual “did you forget to subtract costs?” — that list lives in The 7 hidden costs that quietly eat your rental yield. Here the costs were already in the spreadsheet: service charge, insurance, maintenance, management. The problem is a different one — the estimate, even a complete one, goes stale because it describes a year that hasn’t happened yet.
Why the spreadsheet always falls short
It’s not bad luck, it’s structural. The spreadsheet fails for four reasons that repeat across every portfolio:
- Optimism bias. When you fill it in you’re excited about the purchase, so you enter the best case: twelve months let, casual maintenance and no sign of a levy. Nobody writes “month 8: tenant leaves”.
- It’s static. You build it once and forget it. The day the levy lands, or the month you don’t get paid, that information never makes it back into the sheet. The 4.1 % just sits there, intact and wrong.
- It doesn’t separate expected from collected. “£1,200/month” in a cell doesn’t tell you whether the tenant pays on the 3rd or the 25th, or whether this month they paid half. Without reconciling expected against collected, you don’t see the holes until they’re big.
- Surprises, by definition, aren’t in it. The boiler, the leak and the levy have one thing in common: you leave them out of the spreadsheet precisely because you don’t expect them. And yet, every year, one of them shows up.
Voids deserve their own line, because they hurt the most: in the spreadsheet it’s “12 months” until a tenant change reminds you, six weeks later, that voids exist. And every empty week comes straight off the net, not the gross.
The number that actually matters: observed yield
There are two yields, and it pays not to confuse them:
- The projected one is for deciding whether to buy. It’s a hypothesis, and that’s fine.
- The observed one is for knowing what you’ve got. It’s what has genuinely come in and gone out, month by month.
The expensive mistake is making the second kind of decision (should I raise the rent? sell? buy another just like it?) using the first kind of number. If you believe you’re earning 4.1 % when you’re really getting 3.1 %, you’ll buy the second flat on the wrong expectation — and repeat the drift, doubled.
How to close the gap (without becoming an accountant)
You don’t need a finance degree, just a switch from “estimate once” to “record every month”:
- Log the real thing, not the plan. Every payment and every cost, dated. The £450 boiler on the day you pay it, not “about £600 a year”.
- Reconcile expected against collected. Mark which rents have landed and which haven’t. Half a month of arrears shows up on the 10th, not in your tax return.
- Keep a void history. Every empty period, with its weeks. That turns the “12 months” into the real 10.5, and the yield adjusts itself.
- Recalculate from what you observed. The yield worth trusting comes from the accumulated real transactions, not from last year’s opening assumption.
Done this way, the day-1 4.1 % corrects itself towards 3.1 % as the year goes on — and you see it coming in month 8, not in the year-end summary.
What matters
The spreadsheet isn’t the enemy: it’s a perfect tool for deciding whether to buy. The mistake is treating it as the truth six months later, when it’s already an old snapshot of a year that drifted.
The only yield you can make good decisions with is the observed one: the figure that comes from what you’ve genuinely collected and paid, with the real voids and levies included. It’s usually a point or two below the spreadsheet’s — and knowing that in time is worth more than any optimistic number.
If you want to estimate before you buy, the yield calculator gives you the day-1 snapshot in a minute. And if you’d rather have the observed yield worked out automatically each month —with your real income and costs, a void history and reminders before every tenancy expiry— take a look at Livra.