Buy-to-let Property Profit and Tax Calculator

Methodology for this buy-to-let profit calculator

Methodology

This section provides details on all of the information collected, presented and calculated in the buy to let profit calculator on this page.

Read this section if you have any questions about what the information above actually means or if you'd like to fully understand the calculations that are being performed and would like to be able to use them elsewhere.

Input fields

Expected price

Enter the full price that you expect to be paying for the property. If further along the process, this would be the amount of your accepted offer for the property.

Initial repair cost

This should be the amount you're budgeting for any repairs, refurbishment or up-front work you're expecting to do. It could range from the cost of a professional snagger on a new build, through fitting a new kitchen or applying some paint, to major building works that involve moving walls and changing layouts.

Forecast monthly rent

Beware to enter the monthly rent here, the calculator will multiply it up for answers that require an annual figure. You can research possible rents by talking to local agents, performing rental searches on Rightmove or Zoopla (remember to also search for "let agreed" properties to help guage demand). You might also find the free property tools browser extension useful as it includes local rents data.

Cash available

You can leave this blank and the buy-to-let calculator will tell you the minimum amount of cash you need to make the purchase work with the mortgage criteria (in the other fields). Alternatively you can enter the amount of cash you'd like to put into the project. The calculator will check this is above the minimum (you'll see a red highlight if it's not) and beyond that it will reduce the mortgage used. Enter a large number here if you'd like the run the profit calculations with no mortgage at all.

Legal fees

This field is for your conveyancing and other legal fees involved in the purchase transaction.

Mortgage rate (%)

The interest rate for the mortgage loan you're expecting to get. Typically this would be a fixed rate, or if not it would still be the "current" rate - you might like to try running the calculations with a few higher rate scenarios to see what the effect on your buy-to-let profit would be.

Mortgage fees

Mortgages vary greatly but there are often setup fees involved. Put that amount in this field and the calculator will include it as an investment cost. Not that in some situations you might actually want to consider mortgage fees as an ongoing cost, for example if you're expecting to remortgage every two years to maintain fixed rates the calculations work better with those fees as an expense. You can use the PaTMa Deal Finder calculator to fully customise expenses to cover such a scenario.

Max LTV (%)

Enter the maximum Loan To Value permitted by the mortgage you expect to use. The calculator will use this to check (and limit) the mortgage used in the calculations.

Required rental cover (%)

Also known as the Interest Cover Ratio, this is the percentage Rental Cover required by your mortgage.

Stress rate (%)

The mortgage interest rate that is use in the Rental Cover calculation for you mortgage. This will affect the maximum mortgage that you can get.

Output fields

Total investment

The total amount of cash that would need to be invested in the project. Including stamp duty (SDLT), deposit, initial repair costs and fees.

If you've entered a value for "Cash Available", the total investment figure will be the amount you entered; unless you have more cash available than is required to complete the investment without a mortgage.

Without a "Cash Available" amount, the formula used for this is:
(stamp duty) + (deposit) + (repair costs) + (legal fees) + (mortgage fees)

Stamp duty

The calculated stamp duty (SDLT) for the property purchase price. This assumes a residential property and includes the additional property increase (an extra 3%). You can verify the amount using the online Government stamp duty calculator. SDLT is a complex tax with many adjustments for certain situations which are not covered by this calculator (or the Government one). There is an SDLT manual available with all the details though.

You can find detailed formulas for calculating stamp duty on our blog, complete with downloadable Excel spreadsheet.

Deposit

The deposit amount. This will either be the minimum possible, if you haven't entered a "Cash Available" amount, or the maximum your cash will allow given other investment costs such as stamp duty.

With "Cash Available" specified, the formula for this is:
the minimum of (cash available) - (legal fees) - (mortgage fees) - (repair cost) - (stamp duty) and (purchase price)

Without "Cash Available" being set, the formula is instead:
(purchase price) - (mortgage)
...see below for the mortgage calculation.

Repair costs

The amount you entered as being needed for initial repairs.

Fees

Total of the financial and mortgage fees you've entered.

Mortgage

Value of the mortgage you'll need to use for this property investment (or what you can afford, if you've included set a "Cash Available" value). The corresponding loan to value amount is shown in brackets.

When you've included "Cash Available", the forumula for the mortgage is just:
(purchase price) - (deposit)

However when calculating the minimum investment required the process is more complicated. First we calculate the maximum mortgages permitted by LTV and rental cover limitations.
Max mortgage based on LTV formula: (purchase price) * (max LTV / 100))
Max mortgage based on rental cover formula: (monthly rent) * 12 / ( (stress rate) / 100) / ( (required rental cover) / 100)
Final max mortgage available: the minimum of the above two calculations.

Rental cover

The rental cover percentage calculated for this investment scenario.

Monthly rent

The monthly rental income that you entered.

Monthly mortgage interest

Calculated monthly mortgage interest, using the calculated mortgage borrowing shown and the interest rate that you entered.

Calculation formula: (mortgage) * ( (mortgage rate) / 100 ) / 12

Monthly expenses

An estimate of monthly expenses, calculated as 15% of the rental income. This is intended to be an approximation of what might be needed to cover maintenance, voids, insurance and other running costs. It probably isn't high enough to cover full management by an agent or higher cost leasehold service charges. For the ability to specify custom investment expenses you can use PaTMa Deal Finder.

Calculation formula: (monthly rent) * 0.15

Monthly profit

Calculated as the monthly rent minus monthly mortgage interest and monthly expenses. This value does not allow for the cost of tax.

Calculation formula: (monthly rent) - (monthly mortgage interest) - (monthly expenses)

Annual rent

Twelve times the monthly rental income that you entered.

Annual mortgage interest

Calculated annual mortgage interest, using the calculated mortgage borrowing shown and the interest rate that you entered.

Annual expenses

An estimate of annual expenses, calculated as 15% of the rental income. This is intended to be an approximation of what might be needed to cover maintenance, voids, insurance and other running costs. It probably isn't high enough to cover full management by an agent or higher cost leasehold service charges. For the ability to specify custom investment expenses you can use PaTMa Deal Finder.

Annual profit

Calculated as the annual rent minus annual mortgage interest and annual expenses. This value does not allow for the cost of tax.

ROI

Return On Investment, calculated as your rent minus mortgage and running expenses divided by the amount of cash invested you can find more details on ROI calculation here.

Calculation formula: (annual profit) / (total investment) * 100

Yield

Gross yield, calculated as annual rental income divided by the purchase price, you can find more details on yield calculation here.

Calculation formula: (annual rent) / (purchase price) * 100

Five year profit

Five times the annual rental profit shown.

Five year capital gain

Property values do not increase uniformly, either over time or over different regions. Hence this figure is very much a rough guide of the capital gains you might see over a five year period of fairly steady growth. Specifically, it is calculated assuming a 3% gain per year.