Buy-to-let Profit, Yield, ROI and Tax Calculator | Property And Tenant Manager (PaTMa) (2024)

Methodology for this buy-to-let profit calculator

Methodology

This section provides details on all of the information collected, presented and calculated in the buy to let profit calculator on this page.

Read this section if you have any questions about what the information above actually means or if you'd like to fully understand the calculations that are being performed and would like to be able to use them elsewhere.

Input fields

Expected price: Enter the full price that you expect to be paying for the property. If further along the process, this would be the amount of your accepted offer for the property.
Initial repair cost: This should be the amount you're budgeting for any repairs, refurbishment or up-front work you're expecting to do. It could range from the cost of a professional snagger on a new build, through fitting a new kitchen or applying some paint, to major building works that involve moving walls and changing layouts.
Forecast monthly rent: Beware to enter the monthly rent here, the calculator will multiply it up for answers that require an annual figure. You can research possible rents by talking to local agents, performing rental searches on Rightmove or Zoopla (remember to also search for "let agreed" properties to help guage demand). You might also find the free property tools browser extension useful as it includes local rents data.
Cash available: You can leave this blank and the buy-to-let calculator will tell you the minimum amount of cash you need to make the purchase work with the mortgage criteria (in the other fields). Alternatively you can enter the amount of cash you'd like to put into the project. The calculator will check this is above the minimum (you'll see a red highlight if it's not) and beyond that it will reduce the mortgage used. Enter a large number here if you'd like the run the profit calculations with no mortgage at all.
Legal fees: This field is for your conveyancing and other legal fees involved in the purchase transaction.
Mortgage rate (%): The interest rate for the mortgage loan you're expecting to get. Typically this would be a fixed rate, or if not it would still be the "current" rate - you might like to try running the calculations with a few higher rate scenarios to see what the effect on your buy-to-let profit would be.
Mortgage fees: Mortgages vary greatly but there are often setup fees involved. Put that amount in this field and the calculator will include it as an investment cost. Not that in some situations you might actually want to consider mortgage fees as an ongoing cost, for example if you're expecting to remortgage every two years to maintain fixed rates the calculations work better with those fees as an expense. You can use the PaTMa Prospector calculator to fully customise expenses to cover such a scenario.
Max LTV (%): Enter the maximum Loan To Value permitted by the mortgage you expect to use. The calculator will use this to check (and limit) the mortgage used in the calculations.
Required rental cover (%): Also known as the Interest Cover Ratio, this is the percentage Rental Cover required by your mortgage.
Stress rate (%): The mortgage interest rate that is use in the Rental Cover calculation for you mortgage. This will affect the maximum mortgage that you can get.

Output fields

Total investment

The total amount of cash that would need to be invested in the project. Including stamp duty (SDLT), deposit, initial repair costs and fees.

If you've entered a value for "Cash Available", the total investment figure will be the amount you entered; unless you have more cash available than is required to complete the investment without a mortgage.

Without a "Cash Available" amount, the formula used for this is:
(stamp duty) + (deposit) + (repair costs) + (legal fees) + (mortgage fees)

Stamp duty

The calculated stamp duty (SDLT) for the property purchase price. This assumes a residential property and includes the additional property increase (an extra 3%). You can verify the amount using the online Government stamp duty calculator. SDLT is a complex tax with many adjustments for certain situations which are not covered by this calculator (or the Government one). There is an SDLT manual available with all the details though.

You can find detailed formulas for calculating stamp duty on our blog, complete with downloadable Excel spreadsheet.

Deposit

The deposit amount. This will either be the minimum possible, if you haven't entered a "Cash Available" amount, or the maximum your cash will allow given other investment costs such as stamp duty.

With "Cash Available" specified, the formula for this is:
the minimum of (cash available) - (legal fees) - (mortgage fees) - (repair cost) - (stamp duty) and (purchase price)

Without "Cash Available" being set, the formula is instead:
(purchase price) - (mortgage)
...see below for the mortgage calculation.

Repair costs

The amount you entered as being needed for initial repairs.

Fees

Total of the financial and mortgage fees you've entered.

Mortgage

Value of the mortgage you'll need to use for this property investment (or what you can afford, if you've included set a "Cash Available" value). The corresponding loan to value amount is shown in brackets.

When you've included "Cash Available", the forumula for the mortgage is just:
(purchase price) - (deposit)

Input Fields:

Expected Price:
- Enter the anticipated property purchase price or the accepted offer amount.
Initial Repair Cost:
- Budget for repairs, refurbishments, or upfront work expected for the property.
Forecast Monthly Rent:
- Enter the monthly rent; the calculator will multiply it for annual figures.
Cash Available:
- Determine the minimum cash needed for the purchase or specify your desired cash investment.
Legal Fees:
- Include conveyancing and legal fees associated with the purchase transaction.
Mortgage Rate (%):
- Input the expected interest rate for the mortgage loan.
Mortgage Fees:
- Account for setup fees associated with the mortgage.
Max LTV (%):
- Define the maximum Loan To Value permitted by the mortgage.
Required Rental Cover (%):
- Also known as Interest Cover Ratio, this is the percentage Rental Cover required by your mortgage.
Stress Rate (%):
- The mortgage interest rate used in the Rental Cover calculation.

Output Fields:

Total Investment:
- Sum of cash needed, including stamp duty, deposit, repair costs, and fees.
Stamp Duty:
- Calculated stamp duty for the property purchase.
Deposit:
- The deposit amount, considering various investment costs.
Repair Costs:
- Initial repair costs entered.
Fees:
- Total financial and mortgage fees.
Mortgage:
- Value of the mortgage needed for the property investment.
Rental Cover:
- Percentage calculated for the investment scenario.
Monthly Rent:
- The monthly rental income entered.
Monthly Mortgage Interest:
- Calculated monthly mortgage interest.
Monthly Expenses:
- Estimated monthly expenses as 15% of the rental income.
Monthly Profit:
- Calculated as the monthly rent minus mortgage interest and expenses.
Annual Rent:
- Twelve times the monthly rental income.
Annual Mortgage Interest:
- Calculated annual mortgage interest.
Annual Expenses:
- Estimated annual expenses as 15% of the rental income.
Annual Profit:
- Calculated as annual rent minus annual mortgage interest and expenses.
ROI (Return On Investment):
- Calculated as annual profit divided by total investment, multiplied by 100.
Yield:
- Gross yield calculated as annual rental income divided by the purchase price, multiplied by 100.
Five Year Profit:
- Five times the annual rental profit.
Five Year Capital Gain:
- A rough guide of potential capital gains over a five-year period, assuming a 3% gain per year.

This methodology offers a robust framework for investors to evaluate the financial aspects of a buy-to-let property, considering various factors and potential scenarios.

Buy-to-let Profit, Yield, ROI and Tax Calculator | Property And Tenant Manager (PaTMa) (2024)

FAQs

How do you calculate profit on a buy to let? ›

Put simply the formula to work from is Annual Rent divided by Purchase Price multiplied by 100 = ROI %. Generally, a 5-8% Return on Investment is desirable with most clients looking for a minimum of a 5% return.

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What is a good ROI for rental property? ›

While what constitutes a 'good' rate can vary depending on an individual's investment strategy, location, and market conditions, generally, a return between 6% and 8% is considered decent, while a return of 10% or more is viewed as excellent.

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How do I calculate ROI on rental property? ›

To calculate the property's ROI:

Divide the annual return by your original out-of-pocket expenses (the downpayment of $20,000, closing costs of $2,500, and remodeling for $9,000) to determine ROI.
ROI = $5,016.84 ÷ $31,500 = 0.159.
Your ROI is 15.9%.

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What is the best formula for computing a property's rental yield? ›

The gross rental yield for an individual property can be found by dividing the annual rent collected by the total property cost, then multiplying that number by 100 to get the percentage. The total property cost includes the purchase price, all closing costs, and renovation costs.

What is a good ROI for multifamily? ›

What is a good ROI for multifamily? A good return on investment (ROI) for multifamily investment could be between 14% and 18%. Factors like the local real estate market and asset class will affect this. For example, if you invest in a growth market, your initial ROI will be on the lower end.

What is the average ROI on real estate? ›

Residential properties generate an average annual return of 10.6%, while commercial properties average 9.5% and REITs 11.8%. Investors typically analyze data pertaining to specific geographic regions or metropolitan areas to compare returns and the cost of capital to inform their investment decisions.