OpenRent Community

What Is a Good Return on Investment (ROI) for a Buy-to-Let Property in the UK?

Originally published at: https://blog.openrent.co.uk/what-is-a-good-return-on-investment-roi-for-a-buy-to-let-property-in-the-uk/

The answer is, it depends how much of your own cash you use to purchase the property. And the more cash you use, the worse your return will be. Working out your return on investment (ROI) for a rental property is essential to making financial decisions. This calculation tells investors if buying, letting and selling…

always assuming no void periods and no bad payers

Not sure I agree with this bit…" For those of you looking at a long-term investment, maybe hoping a rental will contribute towards a future pension, you will be okay with a lower ROI in the short-term. Perhaps you have a repayment buy-to-let mortgage which will be paid off within 15 years when you hope to retire. When you come to work out your ROI then, it will be considerably improved. When we look at your new ROI calculation, the figures change because mortgage costs are no longer a factor".

You have paid the mortgage off, albeit with funds from the rental, so your capital invested is still £150,000 because you could have spent that money on something else (eg another property).

For investment comparison you should also look at it based on the current value (less tax) too because you need to compare it to what else you could do with the money (the opportunity cost). If your profit is, say, £10,000 pa, the return based on the Openrent calcs would be 20% Let’s say you’d net 250k after tax if you sold it, that calc would give you a 4% return. Obviously, there is the potential for capital growth to take into account too, but, at that stage, £250k is what you actually have invested in the property, regardless of what you put in to start with.