Understanding Return on Investment
The Return on Investment (ROI) shows what percentage return you're getting on the
actual cash you've put in. This is the figure you should use to compare against other investments
like savings accounts or stocks.
Annual ROI = (Annual Profit ÷ Total Cash Invested) × 100
For example, if you invested £70,000 total (deposit plus all fees) and make £3,500 profit per year,
your annual return is 5%.
This is more useful than just looking at rental income, because it accounts for all your costs and
shows the return on your actual money invested - not the property value.
Why Total Cash Invested Matters
Many landlords only consider the deposit when calculating returns. But your true investment includes
all the upfront costs:
- Deposit: Usually 25% of property value
- Stamp Duty: 5% surcharge on all BTL purchases
- Legal Fees: Solicitor, searches, etc.
- Mortgage Fees: Arrangement, application, valuation
- Setup Costs: EPC, gas safety, electrical certificates
On a £200,000 property, these additional costs can easily add £15,000-£20,000 on top of your £50,000
deposit. That's a 30-40% increase in your actual cash invested, which significantly impacts your
true return.
Understanding the Results
Monthly Cash Flow: What's left in your pocket each month after mortgage and all
ongoing costs. Positive cash flow means the property pays for itself.
Annual Return: Your yearly profit expressed as a percentage of your total cash
invested. Compare this directly to savings accounts, stocks, or other investments to see how your
BTL stacks up.
Initial Term Totals: Shows your total profit over the fixed rate period (2, 3, 5, or
10 years). This helps you understand the real return before you need to remortgage.
Remember: These figures are before tax. Your actual returns will be lower after
income tax (personal name) or corporation tax (limited company).
What's a Good Return?
There's no universal answer - it depends on your goals and alternatives:
- Savings accounts: Currently 4-5% (risk-free)
- Stock market: Historical average 7-10% (with volatility)
- BTL property: Typically 3-8% cash-on-cash (plus potential capital growth)
Consider the full picture:
- Cash flow return (what this calculator shows)
- Capital appreciation (property value increase over time)
- Mortgage paydown (tenant paying off your loan on repayment mortgages)
- Time and effort required to manage the property
- Risk of void periods, bad tenants, or repairs
