Enter the price, where the property is, the rent, your running costs and, if you borrow, the mortgage. The calculator adds the purchase tax of the nation the property is in (Stamp Duty Land Tax in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland, Land Transaction Tax in Wales), then gives the gross and net yield, the first year’s cash flow, the sale price at the end of the holding period, the total gain, the ROI on the cash you put in and the equivalent annual return (IRR). All figures are before tax.
Price and purchase tax
If you will own more than one home after buying, the higher rates apply from £40,000: in England and Northern Ireland, 5 percentage points above each standard SDLT rate; in Scotland, an Additional Dwelling Supplement of 8% of the whole price on top of LBTT; in Wales, the higher LTT rates, from 5% on the first £180,000. Put solicitor or conveyancing fees, the survey and the mortgage arrangement fee under ‘Other buying costs’.
Rent and running costs
Enter the monthly rent. Empty periods and arrears take a share of the year’s rent off: 8.33% is one month without a tenant. Running costs are what you pay as the landlord: insurance, service charge and ground rent, repairs, letting agent fees and safety certificates.
The mortgage
With a repayment mortgage, each payment covers the interest and part of the loan. With an interest-only mortgage you pay just the interest, and the whole loan is repaid at the end of the term or when you sell. Whatever is still owed at the sale comes off the sale price.
Sale and result
Choose how long you will keep the property, a yearly price change and the selling costs. The total gain adds up each year’s cash flow and the net from the sale, less the cash you put in. The ROI divides that gain by your cash in; the IRR is the yearly rate at which the cash you put in is worth the same as everything you get back. Amounts are rounded to the nearest penny, with halves rounded up, and percentages to two decimal places.
Total cost = price + purchase tax + other costs + works.
Cash in = total cost − mortgage.
Net operating income = monthly rent × 12 × (1 − empty periods) − running costs; cash flow = net operating income − mortgage payments.
Gross yield = yearly rent ÷ price; net yield = net operating income ÷ total cost.
Net from the sale = price × (1 + yearly change)^years − selling costs − mortgage still owed.
Total gain = sum of the yearly cash flows + net from the sale − cash in; ROI = total gain ÷ cash in.
IRR: the rate r at which − cash in + Σ cash flow in year t ÷ (1 + r)^t + net from the sale ÷ (1 + r)^years = 0.
Example: a £300,000 buy-to-let in England
You own your home and buy a flat for £300,000, with £3,000 of other buying costs and a £225,000 interest-only mortgage at 4.5% over 25 years. Stamp Duty at the higher rates is £20,000, as in GOV.UK’s own example, so the total cost is £323,000.00 and your cash in £98,000.00. The rent is £1,200 a month with 4% empty periods, and running costs are £2,400 a year: £11,424.00 of net operating income less £10,125.00 of interest leaves £1,299.00 of cash flow in the first year. Gross yield 4.80%, net yield 3.54%. Sold after 10 years with prices up 2% a year, for £365,698.33, less £5,485.47 of selling costs (1.5%) and the £225,000.00 still owed, the property returns £135,212.86. Total gain: £50,202.86, an ROI of 51.23% on your cash and an IRR of 4.43% a year, before tax.
