Rental Property ROI Calculator UK
Working out how to get the best returns with The Property Sourcing Company
invest in success
Complete our 2-step form to access exclusive deals
Everyone who is purchasing a new home in order to rent it will think about returns before anything else. You need to understand what Return on Investment (ROI) is before you start thinking about what you’ll do with all the money you’ll receive. ROI represents the annual return you earn from renting out a home compared to the total money you’ve invested in it.
ROI is just one of the things you’ll need to keep an eye on. It’s also important to consider other factors that could affect profitability. You should also take vacancies or unexpected repair costs into account, which could impact your income. We’re going to walk you through the process of calculating the ROI and help you see if you’re looking at a good investment or not.
Return On Investment calculator
Return On Investment (ROI) calculations are an essential part of any investment analysis and should be done when researching or planning to invest in a property. The actual ROI calculation is fairly straightforward, and looks at how much a property costs, how much money you will need to invest and if you’ll turn a profit or loss in the venture.
Use this property ROI calculator to calculate your return on investment:
How is property ROI calculated?
((Annual profit or rental income – Expenses) / Amount of cash invested) x 100 = Return on investment %.
In order to calculate property return on investment (ROI), you will need to calculate your annual rental income which is the PCM figure timed by 12 (months of the year). You will then need to subtract any expenses including mortgage payments, repairs, management fees, tenant voids and any additional services.
Then you will need to divide this figure by the amount of hard cash investment you have placed into the property and times this by 100 to get the ROI percentage.
What are the essential inputs for accurate property ROI calculators?
In order to have an accurate property ROI calculator, you will need to provide the property costs, rental income and property appreciation of a property.
Property costs
Accurately accounting for property costs is fundamental to calculating ROI precisely. It involves considering not only the initial purchase price but also various other expenses like property taxes, renovation expenses, stamp duty and mortgage costs that can significantly impact your investment profitability.
Rental income
Rental income will be a primary source of return for many property investors, which is why understanding your ROI could help you leverage the amount you earn on a property. The higher the rental income, and lower the investment costs, the higher the ROI.
Property appreciation/Capital growth
Property appreciation, or the change in the property’s value over time is a critical component of ROI for long-term investors. Capital appreciation is when people hold onto property for long periods of time and sell the property to generate a higher rate of return and hopefully make a profit.
What is the difference between Yield and ROI?
Simply put, the difference between rental yield and property ROI calculations is that yield is used by property professionals and investors to provide an easy comparison without taking into account any personal investment or costs.
Here is how you would calculate rental yield:
(Annual rental income / property purchase price) x 100 = Gross yield
Whereas, property ROI calculators are far more complex and take into account all personal expenses and investment, creating a tailored answer which will differ depending on your own circumstances. Most often than not, yield is used as a baseline figure for ROI and therefore.
Understanding ROI on Buy-to-Let investments
Property investors use property ROI calculators to gauge the profitability and effectiveness of their investments. It encapsulates the financial performance of a property by expressing the returns relative to the investment costs.
Whether you’re a seasoned property investor with a robust portfolio or a novice contemplating your first investment, comprehending ROI and mastering the use of property ROI calculations is absolutely vital to your success in the world of property investing.
At its core, ROI is a percentage that measures how effectively your invested funds are generating returns. For property investors, ROI considers both the rental income and any potential property appreciation. It provides a clear picture of whether your property investment is meeting, exceeding, or falling short of your financial objectives.
Calculating ROI for a property can involve complex financial equations, factoring in not just the purchase price but also ongoing costs, rental income and changes in property value — which is where property ROI calculators come to the rescue.
Defining ROI for rental income
ROI for rental income is a measure of the profitability of a buy-to-let property. It calculates the annual income generated from renting the house compared to the total amount of money invested.
This percentage helps investors evaluate how effectively their money is working for them. A higher ROI means better profitability, while a lower ROI may mean the investment isn’t yielding strong returns. However, it’s important to remember that ROI is only one of the aspects of a rental property’s financial performance. Multiple factors should also be considered!
What is a typical ROI on property?
When understanding the Return On Investment within property, there are several factors to consider in your strategy planning process like the actual ROI, property appreciation and the Total ROI.
The residential property rental income ROI in the UK typically ranges from 3% to 5%, but can vary significantly depending on location, like London and Manchester. Commercial properties tend to have higher rental Return On Investments often exceeding 5%.
According to propertydata.co.uk, the average UK rental yield is currently around 4.75% which has been partly fueled by a shortage of new rental properties and an increase in the volume of people looking to rent.
Property values and rental income potential can vary greatly depending between different regions and cities in the UK.
In the South West, the average rental yield sits at around 3.5%, which is far below the UK average. Whereas, London and the South East tend to have higher property prices and potentially higher returns.
Property appreciation in the UK has historically been relatively strong, especially in inner city areas during periods of economic growth. However, it’s important to note that over the long term although property values have generally appreciated, there can be severe short-term fluctuations.
Total property ROI calculator
Net return / Cost of Investment = Total Return on Investment
(Current sale price + Total income received) – Original cost of investment = Net return
To calculate the total ROI for a property investment in the UK, you would need to consider both rental income and potential appreciation. A reasonable total ROI expectation could be between 8% and 12% but this will vary depending on the specific circumstances of the investment.
Should you estimate ROI before investing?
You probably wouldn’t buy a new pair of shoes without trying them on first, and you definitely shouldn’t buy a house without calculating the ROI first! This will help you see into the future and figure out if your profit is going to be decent or not. Besides calculating the ROI, which everyone can do by the way, you should do a couple of other things:
You need to be sure the rental income will be enough to cover all the expenses throughout the year and leave you with something to save.
Comparing one house to a few others in different neighbourhoods is a smart thing to do because you’ll get to see which one will yield the most profit instead of snatching the first deal that seems good.
People often look at the numbers after calculation and think that everything is going to go fine, but forget about potential risks like vacancies and operational costs if they don’t plan on managing the property themselves.
What is a good ROI for investment property?
It all comes down to your expectations from your rental property. If you’re looking for a solid return, then it will be much easier to find a home that will yield some profit, but if you’re looking for great returns, you’ll have to invest more time and effort into finding a place that will meet your expectations.
Here’s a breakdown of what different ROI percentages can indicate:
- 5% to 6% ROI: This is considered a solid return, especially in stable markets with lower risks. It’s often found in areas with steady rental demand.
- 7% to 8% ROI: This range is generally regarded as good, offering a blend of profitability and manageable risk. It’s typical in growing areas where rental demand is strong but not overly speculative.
- 9% or higher ROI: Returns above 9% are excellent and usually indicate a property with higher risk or a strong upside potential, such as in up-and-coming areas or markets with high rental yields.
A good ROI on residential properties is often seen at anything of around 5% or higher, especially as the UK average currently sits at 4.75%. However, what constitutes a good ROI is highly subjective and tied to individual investment goals and risk tolerance.
Investors with a greater appetite for risk may seek higher returns while those prioritising stability may accept lower ROI. Additionally property markets are influenced by economic factors which could impact ROI potential.
At the moment, there are higher rental yield potential in the North of England than in the South, due to Northern rental hotspots with huge student and working professional populations.
Furthermore, rising mortgage rates, the cost of living crisis and shortage of new housing has led to increasing numbers of people renting in the private sector instead of buying property outright.
Below is a table with a set of rental yield percentages within the UK:
| £400 PCM | £450 PCM | £500 PCM | £550 PCM | £600 PCM | £650 PCM | £700 PCM | £750 PCM | £800 PCM | £850 PCM | £900 PCM | £950 PCM | £1000 PCM | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| £80,000 | 6% | 6.8% | 7.5% | 8.3% | 9% | 9.8% | 10.5% | 11.3% | 12% | 12.8% | 13.5% | 14.25% | 15% |
| £90,000 | 5.3% | 6% | 6.6% | 7.3% | 8% | 8.7% | 9.3% | 10% | 10.6% | 11.3% | 12% | 12.7% | 13% |
| £100,000 | 4.8% | 5.4% | 6% | 6.6% | 7.2% | 7.8% | 8.4% | 9% | 9.6% | 10.2% | 10.8% | 11.4% | 12% |
| £110,000 | 4.4% | 4.9% | 5.4% | 6% | 6.5% | 7.1% | 7.6% | 8.2% | 8.7% | 9.3% | 9.8% | 10.4% | 11% |
| £120,000 | 4% | 4.5% | 5% | 5.5% | 6% | 6.5% | 7% | 7.5% | 8% | 8.5% | 9% | 9.5% | 10% |
| £130,000 | 3.7% | 4.2% | 4.6% | 5.1% | 5.5% | 6% | 6.5% | 6.9% | 7.4% | 7.8% | 8.3% | 8.8% | 9.2% |
| £140,000 | 3.4% | 3.9% | 4.2% | 4.7% | 5.1% | 5.6% | 6% | 6.4% | 6.9% | 7.3% | 7.7% | 8.1% | 8.6% |
| £150,000 | 3.2% | 3.6% | 4% | 4.4% | 4.8% | 5.2% | 5.6% | 6% | 6.4% | 6.8% | 7.2% | 7.6% | 8% |
| £160,000 | 3% | 3.3% | 3.8% | 4.1% | 4.5% | 4.9% | 5.3% | 5.6% | 6% | 6.4% | 6.8% | 7.1% | 7.5% |
| £170,000 | 2.8% | 3.2% | 3.2% | 3.9% | 4.2% | 4.6% | 4.9% | 5.3% | 5.6% | 6% | 6.4% | 6.7% | 7.1% |
| £180,000 | 2.7% | 3% | 3.3% | 3.7% | 4% | 4.3% | 4.6% | 5% | 5.3% | 5.7% | 6% | 6.3% | 6.6% |
| £190,000 | 2.5% | 2.8% | 3.2% | 3.5% | 3.8% | 4.1% | 4.4% | 4.7% | 5.1% | 5.4% | 5.7% | 6% | 6.3% |
| £200,000 | 2.4% | 2.7% | 3% | 3.3% | 3.6% | 3.9% | 4.2% | 4.5% | 4.8% | 4.8% | 5.4% | 5.7% | 6% |
*Please note that these figures have been rounded to the nearest 0.1%.
How to use property ROI calculators for your strategy?
Property ROI calculators are powerful tools that can help you make data-driven decisions when it comes to your property investments. Here is a step-by-step guide on how to effectively leverage these calculators to refine your property investment strategy:
Before you can use a property ROI calculator, you will need to gather precise and up-to-date data which will include the property purchase price, any legal costs, ongoing expenses and the current or expected rental income.
There are various property ROI calculators online and some may be more tailored to specific types of properties or investment goals. The one found on this page will give you a very easy insight into the potential returns from your investment property.
Use the calculator to input all the data you have gathered, being thorough to ensure you haven’t omitted any expenses or income sources.
Property values can fluctuate over time which will impact your ROI. If you expect your property’s value to increase, you will be able to generate a reasonable estimate based on historical data and market trends — our team will also be able to help you with this.
Property ROI calculators are versatile tools that allow you to run various scenarios, in that you can change inputs to see how different factors affect your ROI.
For example, you can adjust the rental income, expenses, or capital appreciation rate to assess the impact on your returns which can help you make more informed decisions.
Leveraging property ROI calculators to set realistic investment goals is a key skill for any investor to have, as you will be able to balance out your risk tolerance and financial objectives and set out a well-thought out target ROI.
One of the most valuable aspects of property ROI calculators is their ability to compare different investment opportunities side by side.
Inputting the data for multiple properties to see which one offers the best return – this comparison will help you prioritise your investments and choose the most promising ones.
Return on investment isn’t just about the returns, it’s also a measure of risk. A higher ROI doesn’t always mean a better investment if it comes with significantly higher risk.
Assess the risk associated with each investment opportunity and adjust your strategy accordingly. Sometimes a more conservative investment with a slightly lower ROI might be the wider choice if it offers greater stability.
Property markets change over time which is why regular monitoring of investments via the recalculation of ROI is needed. You should have plans in place to adjust your strategy based on the actual performance of your properties and evolving market conditions.
While property ROI calculators are valuable tools, they are not a substitute for professional advice. Consult with one of our property sourcing experts who can provide you with personalised and tailored guidance based on your unique financial situation and investment goals.
What is the best investment property according to rental yields?
The best investment property for you depends on your investment goals. Are you seeking regular rental income, long-term appreciation or a mix of both? Your risk tolerance and level of involvement in property management also play a significant role.
What works well for one investor may not be the ideal choice for another which is why it’s important you create a strategy plan before jumping into the purchase of a property.
There are many different types of investment properties available, ranging from buy to let investments, commercial properties, property to renovate and student accommodation. Here are the best types of investments for high rental yields.
Student property investments
We have several properties available in major UK university cities, which would present a great purchasing opportunity to let to students.
House in Multiple Occupancy (HMO)
Houses in Multiple Occupation are a popular investment strategy that creates high yields with several individual tenants in a single property.
Commercial Buy To Let
Interested in a commercial property investment somewhere in the UK? Offices, retail, leisure, industrial – all these types of property can give you a solid return.
Residential Buy To Let
Residential Buy To Let’s involve purchasing a residential property with the intention of renting it out to tenants and generating income.
With a well-maintained property in a desirable location able to generate a steady stream of rental income, providing a passive income.
Serviced Accommodation
Serviced Accommodation offers a unique blend of hotel-like amenities with the flexibility and space of an apartment.
It can be attractive for investors due to its strong rental income potential, and high potential for value add.
Holiday Short Term Lets
Holiday short-term lets, often advertised on platforms like Airbnb and Vrbo, involve renting out a property for short stays to tourists and travelers.
It can be a good way to generate income from a vacation home or unused space.
Ways to maximise your ROI
The process of maximising your ROI is relatively straightforward, but it may not be as easy as you might think. You should consider ways to justify the higher rent while attempting to reduce expenses. This would guarantee a higher ROI, which translates to greater profits!
As you are already aware, rental prices have soared in the last couple of years, and increasing them further could be challenging without enhancing the appeal. If you make your property stand out from all the others in the neighbourhood, higher rent wouldn’t be perceived as an issue because tenants would understand what they are paying for!
Additionally, if you manage to lower the management costs, for example, by undertaking some of the work yourself, you can be assured that your ROI will increase, and you will be pleased with the returns.
Determining the best location for an investment property depends on various factors including your investment goals, strategy, risk tolerance, budget and market conditions. And, unfortunately a property ROI calculator won’t be able to give you a comprehensive tailored approach.
There is no one-size-fits-all answer to this question which is why we use a completely tailored approach to sourcing your properties across the United Kingdom. Our industry leading property sourcing service can help you find your dream deal all while ensuring that you are kept ahead of the curve and up to date on the latest developments.
We’re property experts passionate about connecting investors with great property deals across the UK to help build and expand your property portfolio. We have years of experience in the property industry and purchase large quantities of properties every month, and can also help you source many more to order.
We understand that every investor is different, each has their own specific requirements in terms of spend area, type of property, potential ROI and so much more.
Discounted property with high yields
Transparent & honest throughout the process
We’re property experts with years of experience
Investment opportunities tailored to your requirements
WHY INVEST WITH US?
Simply put, we’ll get you the best possible deal. Our sister company, The Property Buying Company, have been in the property buying industry for years & we have access to all their stock which is at a price point that is ready for investors to buy and make a great return on.
No middlemen, no stress & no hassle. We make investing in property and growing your portfolio as easy as it possibly can be.
WHY INVEST WITH US?
Simply put, we’ll get you the best possible deal. Our sister company, The Property Buying Company, have been in the property buying industry for years & we have access to all their stock which is at a price point that is ready for investors to buy and make a great return on.
No middlemen, no stress & no hassle. We make investing in property and growing your portfolio as easy as it possibly can be.
