How To Calculate ROI On UK Property: In a recent video, I break down the exact formula that professional investors use to measure cash-on-cash returns. I also explain why return on investment (ROI) is more important than yield when buying rental properties.
If you are just starting out in property investment, and want to work out if a real estate deal is worth investing in, you need to understand how to calculate the ROI. This allows you to assess whether a deal will be profitable, and the rate of return you will receive.
ROI is more important than yield, particularly when dealing with residential property. The yield is annual rent divided by the purchase price. It does not take into account the amount you actually put down, nor does it include your expenses.
Using yield might make sense when dealing with a commercial property, where there is a long lease and the tenant is responsible for maintenance. However, it is much less useful when it comes to a traditional residential buy-to-let, where the landlord must account for maintenance and void periods.
If you want to see exactly how to calculate ROI on UK property, watch the full video until the very end. You can watch the video at the top of this post or on YouTube. Watching this video will put you head and shoulders above many amateur landlords!
As understanding this is so important, in this article, I will split how to calculate ROI on UK property into 3 easy steps. By the end of this blog post, you will be able to calculate the cash-on-cash returns on your next buy-to-let property deal. This will position you to be able to profit from property without relying on guesswork!
A lot of people are new to the property world and need to understand how to calculate ROI on UK property in a simple way. I am on a mission to get property education into the hands of as many people as possible! However, I need your help to do it! Please would you consider sharing this blog post on your social media pages? With your help, we can reach more people, and make a difference!
1. How To Calculate ROI On UK Property: (Annual Profit ÷ Total Cash Invested) × 100 = ROI!
To calculate your ROI, you need to know your annual profit. This is what you will be left with after all costs. You also need to know the total cash invested. This is not the purchase price, but rather the amount of money you actually invested, including the deposit.
So to calculate the ROI, you need to divide the annual profit by the total cash invested. Then times that number by 100. The result is your annual percentage return.
2. How To Calculate ROI On UK Property: Calculate The Total Cash Invested!
Normally, you will need to put down a 25% deposit on a buy-to-let mortgage. You will probably need to pay stamp duty, and you will need to pay legal fees. If you need to do repairs or refurbishments, or get a survey on the property, include that in your calculations too. Add these costs together to come to a total.
3. How To Calculate ROI On UK Property: Calculate The Annual Profits!
You then need to work out the yearly profits. This is the rent minus the expenses. The main expenses are the three Ms: Mortgage; Management; and Maintenance.
You should calculate the mortgage on an interest only basis. Even if you pick a repayment mortgage, you should view this as choosing to use your profits to pay down the debt. It is not a necessary cost. Therefore, exclude the repayment component of your mortgage payments (for ROI calculation purposes).
Assume 10% for management fees for a standard buy-to-let property. Then set aside 10% for maintenance and voids combined. The amount left over is your profit!
Now that you know the total cash invested and your annual profit, simply apply the sum in step 1! Still confused? Download our free ROI calculator spreadsheet!
How To Calculate ROI On UK Property: Get A Better ROI!
Now that you know how to calculate ROI on UK property, you will notice that the ROI on standard single-let properties is quite low. But there are ways to increase your ROI dramatically, such as: serviced accommodation; social housing; and buy, refurbish, refinance, rent (BRRR).
If you want to learn how to get a great ROI on UK property, join me at my next introductory online training event!
We have different online trainings throughout the year, each teaching different things. Here is a sample of what you could learn on one of our online introductory webinars:
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The SECRETS to becoming a successful property investor
Get immediate and actionable insights to accelerate your property investment journey.
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How to LEVERAGE other people's money to get started
Begin to understand the strategies to use to reduce the barriers to getting started.
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How to FIND fantastic property opportunities
Understand where property professionals source the best deals.
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How to RECYCLE your money again and again
Don't just do it once, repeat the process to build your property portfolio.
Property investing is not just for the rich! Learn the strategies that thousands of people have used to not only start investing, but become financially free! Tickets are free, so book your property training webinar now. If you are ready to take action, I hope to see you very soon!
