A claim that a buy-to-let offers a “good ROI” is incomplete without the calculation behind it. Two properties can show the same percentage while exposing their owners to very different borrowing costs, maintenance demands and cash commitments.
Start by asking what the number measures. Gross rental yield compares annual rent with the property price. A cash-return calculation compares money remaining after specified outgoings with the investor’s cash contribution. A total return over an ownership period would also need to account for changes in value and the costs of buying and selling.
An illustrative calculation
Suppose a property costs £200,000 and the assumed annual rent is £12,000. Its gross yield on purchase price would be 6%. That figure says nothing about the amount left after costs.
Now suppose the owner commits £70,000 in total cash, including the deposit and initial purchase expenses. If the assumed annual cash surplus after running costs and mortgage payments is £2,800, the annual cash return on that contribution is 4%, before tax. These are invented teaching figures, not market quotations or a forecast.
If an additional £2,000 repair reduces that surplus to £800, the same calculation becomes approximately 1.14%. The advertised rent has not changed, but the outcome has. If further cash is invested, the denominator also needs updating.
Keep cash and accounting separate
Mortgage capital repayments reduce cash available to spend while also reducing debt. Avoid presenting a cash-flow calculation as a complete measure of economic profit. Equally, an estimated increase in a property’s value is not cash available to pay a contractor.
MoneyHelper’s buy-to-let mortgage guide explains how borrowing works, while HMRC’s rental-income guidance sets out the separate question of taxable property income. The tax calculation should not be inferred simply from money left in the bank.
Build a comparison you can explain
For each candidate property, use the same ownership period and list the costs included. Show a lower-rent or empty-period scenario, a repair allowance and the actual borrowing terms being considered. Include purchase expenses in the cash committed rather than treating the deposit as the whole investment.
There is no universal percentage that makes a purchase suitable. Compare the assumptions, risks and demands on your time, and seek appropriate financial and tax advice before committing money.
Sources: MoneyHelper, Buy-to-let mortgages explained; HMRC, Work out your rental income when you let property. Reviewed November 2026.