Property Investment ROI Calculator
Last updated: 27 June 2026
Reviewed by Gavin Meiring, Lead research and primary author · Doctoral Candidate (Corporate Governance) · Research and drafting assisted by AI
- Cash-on-cash return — the annual cash flow divided by the cash invested — became a favourite metric of property investors because it ignores phantom gains from mortgage paydown.
- The '1% rule' popular in US real estate says monthly rent should be at least 1% of the purchase price for an investment to make sense.
- The property mantra 'location, location, location' is often attributed to British property tycoon Lord Harold Samuel in the 1940s, and has been repeated by agents ever since.
Property ROI Calculator
A property ROI (return on investment) calculator measures the total return generated by a property investment relative to the capital invested. It is used by buy-to-let investors and property developers to compare investment options, evaluate performance, and decide whether a property justifies the capital deployed.
How to Use the Property ROI Calculator
- Enter the total capital invested, including purchase price, stamp duty, legal fees, and renovation costs.
- Enter the annual rental income received.
- Enter all annual costs including mortgage interest, letting agent fees, maintenance, insurance, and void periods.
- Enter any capital growth, which is the increase in property value over the holding period.
- The calculator returns both rental yield ROI and total return on investment including capital growth.
The Formula
Annual Net Rental Income = Gross Rental Income - All Annual Costs
Rental ROI (%) = (Annual Net Rental Income / Total Capital Invested) x 100
Total Return (%) = ((Net Rental Income Over Period + Capital Gain) / Total Capital Invested) x 100
For a geared calculation using mortgage finance, divide net rental income and capital gain by the equity (deposit) invested rather than the total property cost to reflect the return on your own capital.
Real-World Example
You buy a property for £200,000. Costs including stamp duty and legal fees add £8,000, making total investment £208,000. You put in a 25% deposit of £50,000, plus £8,000 in costs, so equity invested is £58,000.
Gross annual rent: £12,000. Annual costs (mortgage interest at 5% on £150,000 mortgage = £7,500, agent fees £1,200, maintenance £500, insurance £300): £9,500. Net annual rental income: £12,000 - £9,500 = £2,500.
Annual rental ROI on equity = £2,500 / £58,000 = 4.3%.
After 5 years, the property has grown in value by 20% to £240,000. Capital gain = £40,000. Total net rental income over 5 years = £12,500.
Total return on equity = (£12,500 + £40,000) / £58,000 = 89.7% over 5 years.
Property ROI vs Rental Yield
Rental yield and property ROI are related but distinct. Rental yield (discussed in the related tool) focuses purely on the income return relative to property value. Property ROI includes all invested capital (costs and deposit) and accounts for both income and capital appreciation. A property with a modest rental yield can still deliver excellent total ROI if it appreciates strongly. Conversely, a high-yield property in a declining market can underperform when total returns are measured. Evaluating both metrics together gives the most complete picture of investment performance.
Frequently Asked Questions
What is a good ROI for a property investment? A commonly cited target for buy-to-let is a net rental yield of at least 5-6% in the current UK market, though total ROI including capital growth can be significantly higher in appreciating markets. Compare to alternative investments on a risk-adjusted basis.
Does gearing improve property ROI? Yes, gearing magnifies returns in rising markets because you are using borrowed capital to control a larger asset. However, it also magnifies losses if property values fall or if rental income does not cover mortgage costs. Higher gearing increases risk as well as potential return.
Should I include my time in property ROI calculations? Many investors do not account for the time spent managing a property. If you self-manage, adding a notional value for your time provides a more accurate picture of true returns. Outsourcing to a letting agent at 8-12% of rent is often worth it, particularly for investors with professional careers.
How does void periods affect property ROI? Void periods, when the property is empty and generating no rent, directly reduce annual income and ROI. A property vacant for one month per year loses 8.3% of its annual gross rental income. Conservative investors budget for 4-6 weeks of void per year in their ROI calculations.
A geared purchase worked from the deposit outwards
The example higher up this page uses a £200,000 property. This one uses different numbers and focuses on how sensitive the result is to two assumptions that most buyers treat as fixed.
The property costs £285,000. A 25 percent deposit is £71,250, so the mortgage is £213,750. Acquisition costs of £11,400 cover stamp duty land tax, legal fees, a survey and a mortgage arrangement fee. The capital the investor actually puts in is the deposit plus those costs, which is £82,650. That figure, not the purchase price, is the denominator for a geared return.
Gross rent is £1,150 a month, or £13,800 a year. The running costs are a letting agent at 10 percent of rent collected, maintenance at 5 percent of rent collected, and buildings insurance at £360 a year. Mortgage interest is charged on the full £213,750.
Net income across three rates and three void assumptions
Void periods and mortgage rates move together in practice, and either can turn a modestly profitable letting into a loss. The table shows net rental income before tax for nine combinations.
| Mortgage rate | No void | Four weeks void | Six weeks void |
|---|---|---|---|
| 3.5% | £3,888.75 | £2,986.44 | £2,535.29 |
| 4.5% | £1,751.25 | £848.94 | £397.79 |
| 5.5% | -£386.25 | -£1,288.56 | -£1,739.71 |
Measured against the £82,650 of invested capital, the strongest cell returns 4.71 percent and the weakest returns -2.1 percent. The whole range comes from two variables that the buyer does not control once the purchase has completed.
The arithmetic behind one cell: at 4.5 percent, interest is £9,618.75. Four weeks of void reduce rent collected to £12,738.46. The agent takes £1,273.85 and maintenance £636.92, and insurance is £360. Total costs are £11,889.52, leaving £848.94 for the year. Against £82,650 of equity, that is a return of 1.03 percent.
Gearing cuts both ways
The mortgage is what makes the return on equity differ so sharply from the return on the property. Ignore the mortgage and treat the whole £285,000 as the invested capital, and the same £848.94 of net income is 0.30 percent of the purchase price. Gearing multiplies the percentage return on the capital the investor actually provided, and it does so whether the underlying figure is positive or negative.
The 5.5 percent column is the case worth studying before buying. At that rate the rent does not cover the interest and the running costs, so the investor funds the shortfall from other income every month while waiting for capital growth. That is a cash flow problem, not an accounting one.
What exit costs take out of the capital gain
Rental income is only part of the return. Capital growth carries the rest, and selling costs sit between the two.
Assume the property rises 12 percent over three years, taking it to £319,200. The gain is £34,200. Selling costs are an agent at 1.2 percent of the sale price, which is £3,830.40, plus £1,200 of legal fees. Total exit costs are £5,030.40, leaving a net gain of £29,169.60.
Add three years of net rent at the base case of 4.5 percent and four weeks void, which comes to £2,546.83.
| Measure | Amount | Return on £82,650 |
|---|---|---|
| Capital gain before exit costs | £34,200.00 | 41.38% |
| Net rent over three years | £2,546.83 | 3.08% |
| Total before exit costs | £36,746.83 | 44.46% |
| Total after exit costs | £31,716.43 | 38.37% |
The exit costs alone remove 6.09 percentage points from a three year return, which is 11.43 percent a year once the total is annualised. Over a longer hold the same costs are spread thinner, which is one reason property returns improve with time in the market.
Costs that belong in the invested capital figure
The capital invested is everything the investor has to put in before the property produces income.
Property purchase costs belong there: stamp duty land tax, legal fees, the survey, and the mortgage arrangement fee. Refurbishment before the first let belongs there too, along with any interest the investor pays during an initial void while the property is being prepared.
Rent received does not belong there. Neither does the mortgage principal repaid, because that money builds equity rather than being spent. Treating either as capital reduces the denominator and flatters the return.
Assumptions behind these numbers
- Rent is collected for the full year less the void weeks shown. The weekly figure is gross rent divided by 52.
- The agent fee of 10 percent and maintenance at 5 percent are charged on rent collected, not on rent demanded.
- Insurance is a fixed annual cost of £360.
- The mortgage is interest only at a fixed rate for the holding period. A repayment mortgage shifts part of the monthly payment from interest to principal, which changes the cash flow but not the interest cost.
- Acquisition costs of £11,400 are illustrative. The real figure depends on the tax bands in force at completion, the buyer's status and the price paid.
- Rent, costs and interest are all held flat in nominal terms. In practice rents and costs both drift upwards.
- No value is placed on the investor's own time. Self-managing a single property typically takes a few hours a month, and putting a number on that time lowers the return.
- Selling costs of 1.2 percent plus £1,200 are assumed at exit, because a return that ignores the cost of realising the asset is not a return a buyer can spend.
Working the mortgage rate backwards from a target return
The same numbers answer a more useful question before a purchase: what mortgage rate does this property need for the return to clear a stated hurdle?
Take a target net rental return of 4 percent on the £82,650 of invested capital. The target income is £3,306.00. With four weeks of void, rent collected is £12,738.46, and the costs other than the mortgage are the agent's £1,273.85, maintenance of £636.92 and insurance of £360, which total £2,270.77.
Deducting both from rent collected leaves £7,161.69 available for mortgage interest. Divided by the £213,750 loan, that is an interest rate of 3.3505 percent, or 3.35 percent.
The answer is a ceiling rather than a forecast. Any rate above 3.35 percent puts the 4 percent target out of reach at this rent and this level of costs. At the 4.5 percent used in the base case, the same property returns 1.03 percent. A buyer who needs 4 percent has to change a different input: a lower purchase price, a higher rent, a larger deposit, or a cheaper source of debt.
A larger deposit is the input most within the buyer's control. Moving from a 25 percent deposit to 40 percent puts £114,000 down, leaves a £171,000 mortgage, and lifts the invested capital to £125,400 once the £11,400 of acquisition costs are added. At 4.5 percent the interest falls to £7,695.00, and net income with four weeks of void rises to £2,772.69. Against £125,400 of capital that is a return of 2.21 percent, roughly double the geared figure, at the cost of tying up another £42,750.
| Deposit | Mortgage | Invested capital | Net income, 4.5% and 4 weeks void | Return |
|---|---|---|---|---|
| 25% | £213,750 | £82,650 | £848.94 | 1.03% |
| 40% | £171,000 | £125,400 | £2,772.69 | 2.21% |
Cutting the loan raises the return here because the property's yield on total cost sits below the mortgage rate. When the yield beats the rate, gearing raises the return instead, and the same table would rank the two structures the other way round.
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