Buy-to-let ROI
What is buy-to-let ROI?
Return On Investment (ROI) is the percentage return you make on a property that you buy to rent out, after considering all expenses.
The calculation includes all expenses apart from tax, and the rental income per month. It is the comparison between the cash you put in and cash you get out (per year). It includes mortgage payments but does not include the purchase value of the property.
ROI is represented as a percentage. A positive ROI means you are making a profit. A negative is a loss.
How to Calculate Buy to Let ROI
( ([annual rental income] - [annual expenses]) / [total cash investment]) * 100 = [ROI]
PaTMa's free buy-to-let calculator can handle the calculation for you, and Property Prospector includes a buy to let calculator for each property on your shortlist. However, you can also manually make the same calcluations.
Here's an example:
Purchase details:
- Property value: £180,000
- Stamp duty: £6,500
- Mortgage and solicitor costs: £1,800
- Initial repair costs: £2,200
- Mortgage: £132,000
- Total investment: £58,500
Income and expense details:
- Rent (annual): £9,900 (monthly rent: £825)
- Mortgage payments (annual): £3,300
- Managing agent, maintenance, voids (estimated, annual): £1,485
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Total annual costs: £4,785
ROI: ( (9900 - 4785) / 58500) * 100 = (5115 / 58500) * 100 = 0.0874 * 100 = 8.74%