Property ROI Calculator

Rental yield vs ROI

When evaluating a property investment, it is easy to confuse rental yield with Return on Investment (ROI). They measure different things.

Rental yield compares the rental income against the total value of the property. It tells you how efficiently the property itself generates income as an asset, regardless of how it was funded.

Return on Investment (ROI) or "cash-on-cash return" compares the net income against the actual cash you invested. It tells you how hard your specific capital is working.

Why the difference matters

Imagine buying a £250,000 property that produces £15,000 in rent. Its gross rental yield is 6%. If you buy it in cash, your initial invested capital is £250,000.

But if you buy it with a £187,500 mortgage, your cash deposit is only £62,500. The property still has a 6% gross yield, but your ROI calculation must now reflect your smaller cash outlay and the cost of the mortgage interest.

Leverage (borrowing) means a property with a moderate rental yield can potentially produce a much higher percentage ROI on the cash invested. However, leverage also increases risk and finance costs.

What cash should be included?

To get an accurate picture of your return, your "cash invested" figure should typically include all the capital required to acquire the property and bring it to a let-able standard. This often includes:

• the deposit;
• stamp duty / land tax;
• legal and conveyancing fees;
• broker and survey fees;
• initial refurbishment costs.

How the projection works

The projected property value compounds your selected annual appreciation rate from the current property value, not from the cash invested. Projected rental income holds the entered annual rent, annual property costs and annual finance/interest costs constant for the selected period; it does not assume rent growth.

Total projected investment gain combines the capital uplift already achieved, any historic net rental profit you enter, projected additional appreciation and projected net rental income after the annual property and finance/interest costs entered above. Cumulative total investment return divides that gain by the original cash invested, not by the purchase price or current property value.

Total capital growth is the projected property value minus the original purchase price. This is the same as existing capital uplift plus projected additional appreciation, so current appreciation is counted once. The secondary forward-return figure includes only projected additional appreciation and projected net rental income for the selected future period.

The appreciation rate is an estimate, not a forecast from Fructus. The editable 1.2% default is an indicative starting assumption informed by approximately five-year English regional house-price performance excluding London. Historical house-price performance does not guarantee future performance, and individual properties and regions can differ substantially.

The projection includes the current annual finance/interest cost you enter and assumes annual income and costs remain constant. It excludes tax, future financing changes, mortgage capital repayment, transaction and disposal costs, rent growth and other costs you have not entered.

Source reference: UK House Price Index reports from HM Land Registry.

If you prefer to measure the property's performance independently of its financing, use our rental yield calculator.