Calculating the return on investment (ROI) for your properties is more than just a good idea – it’s absolutely essential. Neglecting this crucial metric is like flying blind, leaving you unable to tell if your portfolio is actually growing or slowly sinking.
Without a clear understanding of your ROI, you’re just guessing at what’s working and what’s not, which can lead to costly mistakes and missed opportunities. It’s the key to making informed, strategic decisions that directly impact your financial success.
Here at Centrick Invest, we’re not just property experts; we’re also passionate about helping you maximise your returns. Let us walk you through exactly what ROI is and how to calculate it effectively.
ROI = Investment Cost
(Total Gain−Investment Cost)
Multiply the result by 100 to express this as a percentage.
For property, the total gain includes rental income, appreciation in value, and any other income generated by the property. The investment cost includes the purchase price of the property along with all associated expenses like stamp duty, solicitor fees, renovation costs, and any other upfront costs.
To calculate your net profit, you need to subtract all of the costs that go into the property from the rental income. These costs can include your operating expenses (day-to-day running of the property), the maintenance and repairs required to keep your property in good condition, utility costs, property taxes, and insurance costs.
Some landlords may experience void periods, which can be detrimental to your ROI, leaving you with no rental income – this is an expense that must be considered. Once all of these costs have been subtracted from the rental income, you will have your ‘net profit’.
Your total investment should include both the initial costs of purchasing your investment property and the ongoing expenses that come with owning the property. Your upfront costs include the price of the property, stamp duty land tax, and legal, broker and survey fees, as well as refurbishment costs and the insurance that comes with the property.
Some ongoing costs always come with owning an investment property, and it’s important to understand which ones apply to yours so you can factor them into your overall ROI. These include your mortgage repayments, property management fees if you have hired a company to manage the property for you, maintenance and repairs, and, if the property is leasehold, you will likely have service charges to pay, as well as council tax, and you may need to budget for annual safety checks.
Understanding your total investment gives you the true cost of your property. Without accounting for both the upfront purchase costs and ongoing expenses, your ROI calculation could be misleading. Knowing the full picture means you can accurately measure your profits, as well as spotting inefficiencies, and allows you to compare different properties to see which property in your portfolio is delivering the best returns.
You purchase a property for £200,000, with buying costs of £5,000, and spend £15,000 on improvements. You later sell the property for £250,000, having also earned £36,000 in rental income over three years. During that time, you incur £6,000 in running costs such as maintenance, insurance, and management fees.
Step 1: Calculate Total Investment Cost
This includes purchase price, buying costs, and improvement costs:
Total Investment Cost = £200,000 + £5,000 + £15,000 = £220,000
Step 2: Calculate Total Gain
This includes the sale price plus the rental income:
Total Gain = £250,000 + £36,000 = £286,000
Step 3: Calculate Net Profit
Subtract total investment and running costs from total gain:
Net Profit = Total Gain − Total Investment Cost − Running Costs
Net Profit = £286,000 − £220,000 −£6,000 = £60,000
Step 4: Calculate ROI
ROI = Net Profit / Total Investment Cost × 100
ROI =£60,000/ £220,000 × 100 = 27.27%
A healthy ROI in the UK property market isn’t a static figure; it can vary based on a few mitigating factors. Broadly speaking, an ROI of over 5% for residential property is considered to be good, but this can vary based on a few mitigating factors. For example, some cities will have a higher rental yield than others.
The type of property can affect this; for example, student accommodation can often generate a higher yield. The market conditions can also significantly impact your ROI, with lower interest rates often leading to lower mortgage payments, improving your returns by reducing your expenses.
In addition to the financial calculations, it’s crucial to look beyond the numbers. While ROI is a vital measure of success, it’s not the only factor. A property’s true value and profitability are influenced by a range of elements. These include:
Your property investments are a key part of your financial future, and tracking your ROI is how you ensure they are working as hard as possible for you. It’s the metric that tells the real story of your portfolio’s health—a high ROI signals a successful strategy, while a low or negative one alerts you to potential problems before they escalate. By regularly calculating your ROI, you gain the clarity and confidence to make smarter decisions, helping you maximise returns and build long-term wealth.
Ready to take control of your property portfolio?
For expert, transparent advice on your property investment journey, contact Centrick Invest today. Fill in the form below to get in touch and take the next step toward making your property investments work harder for you.
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