Rental Property Calculator

What this calculator tells you

A rental property earns income from rent, but the rent has to cover running costs, and any mortgage, before anything is left over. This calculator shows the rental yield, which is the rent as a percentage of the property price, and the monthly cash flow left after costs and mortgage payments.

Yield and cash flow answer different questions. Yield lets you compare a property with other properties and investments on one basis. Cash flow shows whether the property pays for itself each month, which affects how much you must fund from other money.

How yield and cash flow are worked out

The gross yield equals the annual rent divided by the purchase price, multiplied by 100. The net yield deducts running costs from the annual rent first, such as maintenance, insurance, letting fees, property tax and empty periods. The monthly cash flow equals the net monthly rent minus the mortgage payment. A negative cash flow means you must cover the shortfall from other income.

A worked example

Suppose you buy a property for 250,000 and rent it for 1,500 a month, which is 18,000 a year. The gross yield is 18,000 divided by 250,000, which is 7.2%. If running costs are 6,000 a year, the net rent is 12,000 and the net yield is 4.8%. If the mortgage costs 700 a month, the cash flow is 1,000 minus 700, which is 300 a month before any tax.

Why the costs matter more than the headline yield

A high gross yield can hide large costs. Maintenance, service charges, insurance, letting fees and periods without a tenant all reduce the money you keep. A common mistake is to compare gross yields across properties with very different cost levels. Work out the net yield for each to make the comparison fair.

Limits of the calculation

The calculator uses a fixed rent and fixed costs, and does not allow for vacancies beyond those in the costs you enter. Rents can fall, and repairs can arrive in bursts, so keep a reserve. The result also excludes income tax on the rent, capital gains tax on a later sale, and the purchase costs of acquiring the property, unless you include them in the price. Mortgage terms vary, so use the actual payment from your lender.

Planning for repairs and vacancies

Set aside a yearly allowance for repairs, and a separate fund for larger items such as a roof or a boiler. Repairs are unevenly spread, and a property that looks profitable in an average year can need cash in a bad one. Keeping a reserve prevents a forced sale when a large bill arrives.

Check the lease terms and local rules on deposits, notice periods and the rights of tenants, because these affect how quickly you can recover a vacant unit or a rent arrears situation.

Using the result

Use the yields to compare properties and the cash flow to test whether you can afford the monthly shortfall if one is expected. Run a few scenarios, including a month with no tenant and a rise in interest costs, so you know how much margin there is before the property becomes a burden.

Checking your numbers with a second view

Ask someone who manages rental property locally to review your running cost estimates, and compare them with published local averages for insurance, maintenance and letting fees. A second view often finds costs that were left out, and it makes the cash flow figure more reliable before you commit.