How to Calculate ROI on a Buy to Let
Annual profit divided by cash invested. The formula is easy. Everything hard about it is in the two lists of numbers you feed it.
ROI (Return on Investment) on a buy to let is your annual profit after all costs, divided by the total cash you put in, times 100. On 23 Beech Grove in Carlton in Lindrick, bought at £90,000 and letting at £850 a month, that works out at 7.9%. The property’s gross yield is 11.3%. Both come from the same house.
The formula is one line. What separates a real ROI from a fictional one is whether you counted the stamp duty, the void month and the maintenance allowance. Most people don’t, which is why most projections are wrong in the same direction.
The formula
ROI = (annual rent, minus voids, minus running costs, minus mortgage interest) divided by total cash invested, times 100
Seven steps to fill it in. I’ll run Beech Grove through all of them. Every figure below is an illustration of the method, not a quote, and it excludes any sourcing fee.
- Total the cash going in, including every buying cost
- Total the annual rent at an achievable figure
- Take a void allowance off it
- Deduct the running costs
- Deduct the mortgage interest
- Divide, then multiply by 100
- Stress test it before you believe it
Step 1: total the cash going in
Add every pound that leaves your account between offer and first tenant. This is the number people underestimate, and every pound missed here inflates the ROI.
| Cash in | £90,000 purchase, 25% deposit |
|---|---|
| Deposit, 25% | £22,500 |
| Stamp duty, higher rates for an additional property | £4,500 |
| Conveyancing, searches and disbursements | £1,800 |
| Level 2 survey | £600 |
| Lender arrangement fee | £1,000 |
| Mortgage broker fee | £500 |
| Refurbishment | £6,000 |
| Flooring, white goods and furnishing | £1,500 |
| Total cash invested | £38,400 |
The stamp duty line is the one that catches people. At £90,000 there’d be nothing to pay on the standard residential rates, because the nil rate band runs to £125,000. But the higher rates for additional dwellings apply from £40,000 upwards and charge 5% on everything up to £125,000, so £90,000 costs £4,500. A non-UK resident buyer adds a further 2%, another £1,800. Rates checked on GOV.UK on 25 August 2026. Whether they apply to your circumstances is a question for your solicitor.
Note the refurbishment sits in cash invested, not in running costs. It’s capital you deployed, so it belongs on the bottom of the fraction.
Step 2: get a rent figure you can defend
Use an achievable rent, not an aspirational one. The strongest evidence is a signed tenancy on the same street. Next best is what comparable properties of the same size and condition are currently let at, checked on the portals with the let agreed filter on, and confirmed by a call to two local letting agents.
Beech Grove lets at £850 a month, so £10,200 a year.
If a listing quotes a rental estimate, treat it as marketing. The gap between an estate agent’s rental estimate and the achieved figure is routinely £50 to £75 a month, and £50 a month is £600 a year, which is 1.6 percentage points of ROI on £38,400 of cash. That’s the difference between a good deal and an average one, sitting inside a number nobody checked.
Step 3: take a void off it
Assume the property is empty for at least one month a year. Every landlord I know has had a void and every projection I read pretends otherwise.
£10,200 minus one month at £850 gives an effective rent of £9,350. In a thin rental market, or on a street where a third of the houses are already advertised to let, use two months.
Voids cost more than the missing rent, as well. Council tax falls on the owner when a property is unoccupied, and the standing charges keep running.
Step 4: deduct the running costs
These are the annual costs of owning the property regardless of how it’s financed.
| Running cost | Annual |
|---|---|
| Letting agent management, 10% of collected rent plus VAT | £1,122 |
| Maintenance allowance, 10% of gross rent | £1,020 |
| Buildings insurance | £300 |
| Gas safety, EICR annualised, EPC | £180 |
| Total | £2,622 |
The maintenance allowance is the line most often set to zero, and it’s the one that arrives as a lump. A boiler is £2,000 to £3,500. A rewire on a pre-1930 terrace is £3,000 to £5,000. A roof is more. Setting aside 10% of the rent smooths that, and if the property came with a level 2 survey flagging a roof at the end of its life, raise it.
If you self manage, you can remove the management line, but only if you genuinely will. Managing a property from 200 miles away is not free, it’s just unbilled.
Step 5: deduct the mortgage interest
On a 25% deposit the loan is £67,500. At 5.5% on an interest only buy to let mortgage, that’s £3,713 a year.
Use interest only if that’s your product, which most buy to let borrowing is. If you’re on repayment, use the interest portion for the ROI calculation, because the capital element is you paying yourself. Then track it separately, since it’s real return in the form of equity.
Step 6: divide
Effective rent £9,350, minus running costs £2,622, minus interest £3,713, gives net annual cashflow of £3,015.
£3,015 divided by £38,400 is 7.85%, so a 7.9% ROI. That’s £251 a month in the hand on a house with a headline gross yield of 11.3%.
For comparison, buying the same property in cash puts £104,400 in, removes the £3,713 of interest and the £1,500 of lender and broker fees, and produces £6,728 a year. That’s a 6.4% ROI. Lower, and considerably less exposed to interest rates. Which of those two is better depends on whether you’re optimising return or resilience, and there’s no universally correct answer to that.
Step 7: stress test before you believe it
A projection that only works in good conditions isn’t a projection. Run three scenarios at minimum.
| Scenario | Net cashflow | ROI |
|---|---|---|
| Base case, 5.5% interest, one month void | £3,015 | 7.9% |
| Rate rises to 7.5% | £1,665 | 4.3% |
| Two months void instead of one | £2,267 | 5.9% |
Stress at the current rate plus 1.5 to 2%. If the deal only works at today’s rate, you’re relying on the Bank of England for your margin. At 7.5% Beech Grove still pays, at 4.3%, which is thin but survivable. Plenty of deals go negative on that test, and that’s the moment to find out, not two years in.
Should ROI include capital growth?
Keep them separate, then add them deliberately. Cash ROI is money that arrives. Capital growth is paper until you sell or refinance, and it’s a forecast rather than a payment.
Added together you get total return, which is the honest picture over a long hold. Beech Grove at 4% annual growth gains £3,600 on the £90,000 asset, which is another 9.4% on £38,400 of cash, taking total return to roughly 17.3%. The downside first, though: a 4% fall is minus 9.4% on your cash. Leverage works in both directions and it doesn’t care which one.
The full argument about growth versus income, with twenty year figures, is in ROI vs yield explained.
The five mistakes that inflate ROI
- Dividing by the purchase price instead of the cash invested. That’s net yield, not ROI
- Leaving out stamp duty, which on this £90,000 purchase was £4,500
- Using the listing’s rental estimate instead of an achieved local figure
- Setting voids and maintenance to zero
- Forgetting tax. Everything above is pre-tax, and for individual landlords mortgage interest is no longer deducted from profit, it’s relieved by a basic rate tax reduction of 20%, per GOV.UK, checked 25 August 2026. Ask an accountant what that does to your position
What this means for you
Build the model before you view, not after you offer. If the ROI at the asking price doesn’t clear your requirement, you now know exactly what price does, and that’s your negotiation position rather than a guess. How to negotiate the price of an investment property shows the same house being taken from £125,000 to £90,000 on that basis.
Bullseye builds this model on every property before it’s shown to a client, and most of them fail it. If you want yours run on a deal you’re looking at, send me the listing.
Connor, Bullseye Properties Ltd