Return on BTL investment

The return (or profit) on investment is usually referred to as a yield, and is normally between 4% and 10%.

It can be calculated as follows:

Annual gross yield = net rental income divided by buying & running costs

Rental income

The rent that a property can achieve will depend on several factors, including the rent for comparable local properties, market trends, tenant demand, condition and decorative order. as a rule of thumb, the gross rents should be between 130% and 150% of the monthly mortgage payments. Your local Romans Lettings branch can give you a free rental valuation for your property and advise you on its rental income potential.

Buying costs

Costs include mortgage set up fees, survey fees, legal fees, Stamp Duty (0% up to £125,000 and 1% from £125,001 to £250,000).
As a rule of thumb, if you buy a property with a purchase price less than £250,00, the cost will be approximately 1.5 – 2.5% of the value depending on whether you pay Stamp Duty or not.
Over £250,001, Stamp Duty will be at least 3% of the property’s value.

Running costs

The highest running cost of a BTL investment is typically the mortgage payments, so you need to keep these as low as possible – seek independent advice to discover the best BTL mortgage option that best fits your needs and budget.

Other running costs include:

• Annual costs on an interest-only mortgage (e.g. £185,000 @ 6% = £9,453)
• Gas/elec safety certificate
• Landlord’s insurance
• Management costs.