The yield, built from the ground up
A 12–13% net target is a large number in UK property. It deserves an explanation rather than a headline — so here is exactly how it is constructed, what moves it, and what could take it apart.
Key facts at a glance
- 2-bed: £127,400 purchase · 12% target net · approximately £15,288 target net income in year one.
- 3-bed: £176,040 purchase · 13% target net · approximately £22,885 target net income in year one.
- The figure is net, not gross — operating costs are funded through the service charge before rent passes through.
- Annual review of CPI+1%, upward only, subject to the lease and legal pack.
- Running yield moves with real occupancy because the lease is pass-through — below target under stress, above it when performance is strong.
- These are target returns. They are not guaranteed, and income can fall.
1. Why the number is possible at all
A 12–13% net target is not achievable in most of the UK residential market, and any explanation that skips the arithmetic should be treated with suspicion. Three things make it possible here, and all three are structural rather than promotional.
- Entry price. A fully refurbished freehold house in County Durham costs a fraction of the equivalent in southern England. The denominator of the yield calculation is simply much smaller. The location case is set out in full here.
- Income basis. Rent is derived from government-funded housing-cost payments for eligible residents, administered through the provider and operator structure — not from what an open-market tenant can afford locally.
- Cost structure. Operating costs are funded through the service charge rather than deducted from your rent unpredictably, and the operator, not you, carries the day-to-day management burden.
2. Net, not gross — and why that matters
Most UK property yields you will see advertised are gross: annual rent divided by purchase price, before letting agent fees, void periods, maintenance, insurance, compliance and management. Investors routinely lose a third or more of a gross yield to those costs.
The 12–13% quoted here is a net target. Maintenance, insurance, tenant support, compliance, management, utilities, void provision and repairs are funded from the service charge before landlord rent is passed through. Portfolio data indicates average maintenance spend of around £25 per unit per week. Where service-charge expenditure comes in below budget, the unspent balance may be returned to the landlord or retained as a sinking fund for future works — which means effective return can exceed the target in some periods. That is portfolio data, not a promise.
3. The two worked examples
| 2-bedroom house | 3-bedroom house | |
|---|---|---|
| Indicative purchase price | £127,400 | £176,040 |
| Target net yield | 12.0% | 13.0% |
| Target net income, year 1 | £15,288 | £22,885 |
| Target net income, monthly | £1,274 | £1,907 |
| Tenure | Freehold | Freehold |
| Management agreement | 25 years | 25 years |
| Annual rent review | CPI+1%, upward only | CPI+1%, upward only |
Indicative figures based on the standard worked examples. Confirmed pricing and projections are issued in each live property pack and are subject to the property pack, lease documentation and legal due diligence. Stamp Duty Land Tax (including the 2% non-resident surcharge where applicable), legal fees and any tax on income are excluded — see the overseas ownership guide.
4. Twenty-five years, illustrated at CPI+1%
The lease provides for an annual upward-only review of CPI plus 1%. The table below illustrates that mechanism at 4% per annum. It is an illustration of how the review works, not a forecast of UK inflation over twenty-five years — nobody can produce one of those honestly.
| Year | 2-bed target net income | 2-bed cumulative | 3-bed target net income | 3-bed cumulative |
|---|---|---|---|---|
| Year 1 | £15,288 | £15,288 | £22,885 | £22,885 |
| Year 5 | £17,885 | £82,805 | £26,772 | £123,953 |
| Year 10 | £21,760 | £183,549 | £32,572 | £274,760 |
| Year 15 | £26,474 | £306,121 | £39,629 | £458,240 |
| Year 20 | £32,210 | £455,247 | £48,215 | £681,471 |
| Year 25 | £39,188 | £636,683 | £58,661 | £953,067 |
Based on the worked examples above; CPI+1% illustrated at 4% p.a. Cumulative figures are the sum of target net income to that year and take no account of tax, transaction costs, capital expenditure or the time value of money. Projections are targets, not forecasts or guarantees.
5. What happens when occupancy falls
This is the question that matters most, and it is the one fixed-rent schemes were designed to avoid answering. Because the lease is pass-through, your running yield responds to real occupancy in both directions.
| Effective occupancy | 2-bed running yield (12% target) | 3-bed running yield (13% target) |
|---|---|---|
| 50% | ≈ 9.1% | ≈ 10.5% |
| 60% | ≈ 11.3% | ≈ 12.7% |
| 70% | ≈ 13.4% | ≈ 15.0% |
| 80% | ≈ 15.5% | ≈ 17.0% |
| 90% | ≈ 17.6% | ≈ 19.1% |
| 99% (sample record) | ≈ 19.5% | ≈ 21.0% |
Interpolated from portfolio occupancy analysis. The 2-bed clears its 12% target at roughly 60–70% effective occupancy. Illustrative only — running income is linked to occupancy, eligibility, funding rules and operational performance, and is not guaranteed.
Two honest observations about that table. First, it shows real downside: at 50% occupancy a 2-bed is running at roughly 9.1%, materially below target. Second, it shows that the target is not set at the top of the range — there is deliberate headroom, which is precisely the discipline that was missing from the schemes that failed.
6. Against standard buy-to-let
| Standard UK buy-to-let | Transitional housing | |
|---|---|---|
| Typical net return | ≈ 4–6% | 12–13% target |
| Income source | Open-market tenant | Government-funded housing-cost payments |
| Demand driver | Local market, cyclical | Statutory duty, structural |
| Management | You or a letting agent | Specialist operator, 25-year agreement |
| Rent review | Market, at re-let | CPI+1% annual, upward only |
| Void exposure | Yours in full | Operator’s job; void provision in service charge |
| Main risk | Tenant quality, local market | Occupancy, welfare policy, operational performance |
The trade is not “more return for no reason”. You are exchanging open-market flexibility and a broad buyer pool for a long management agreement, a specialist operator and an income linked to a public funding system. Whether that trade suits you is exactly the sort of question a professional adviser should be asking on your behalf — which is why we introduce every investor to one.
7. The headroom in the number
Notice where the target sits on the occupancy table above. A 2-bed clears its 12% target at roughly 60–70% effective occupancy, while the 600-unit transitional sample has been running at 99%. The target is deliberately set well inside the operating range rather than at the top of it — which is the discipline that was missing from the schemes that failed a decade ago, and the reason this model has held up.
Running income is linked to occupancy, eligibility, funding rules and operational performance, and is not guaranteed. Figures above are pre-tax and exclude SDLT and transaction costs. Your adviser will take you through the full position for the specific property, including the downside cases.
Get the numbers for a live property
Confirmed pricing, the actual lease terms and a property-specific projection are issued in each live property pack. Start an enquiry and we will introduce you to a vetted broker or IFA who can walk you through them.
Aii Property does not sell directly and does not provide financial advice. By submitting this form you agree to be contacted about UK transitional and supported housing investment and to be introduced to a vetted professional broker or IFA in our network, who will advise you on your purchase. Property values and income can go down as well as up; returns shown are targets, not guarantees.