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  • Buy-to-Let

    ROI calculations

    Could somewhere tell me if I’m calculating ROI in a sensible way?

    HOUSE 1

    Total cost £84,277.64

    Borrow £67,500

    Money left in therefore £16,777.64

    Annual profit £3,271.08 (12x rent of £525 less management fees and mortgage repayments)

    = 19.5% ROI

    HOUSE 2

    Total cost £82,364.71

    Borrow £67,500

    Money left in therefore £14,864.71

    Annual profit £3,271.08 (12x rent of £525 less management fees and mortgage repayments)

    = 22% ROI

    If this is all correct, the ROIs seems quite good to me. Do you agree? Have I missed something that might make these less good investments (they’re in Hull, which by my understanding is viewed as a reasonable area for capital growth).

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    I think your ROI calculations look about right.

    You might find this calculator useful for playing about with calculating/verifying ROI https://app.patma.co.uk/prospector/prope...alculator/ (full disclosure, I made it)

    Things you might want to double check:

    • does your total cost really include everything? Eg legal costs, mortgage fees, stamp duty, repairs?
    • should you include an allowance for voids?
    • should you include an allowance for maintenance?
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    Landlord | PaTMa Founder | http://www.patma.co.uk | Property and Tenant Manager

    Try our buy-to-let profit calculator or property browser extension for free.


    Thanks for this.

    Yes, the total costs included absolutely everything.

    As for voids and maintenance, I decided to leave those out, not because they're irrelevant but because they're unknowns.

    Perhaps mine could be termed a best case scenario ROI.

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    To leave out maintenance costs and voids means any ROI figure produced is not in fact ROI

    As you have elected to do that it  tbh makes your 19.5% and 22% incorrect and of limited use

    `Best case scenario  ROI` as you put it would be to also leave out management fees and mortgage payments too!

    I dont think you should pick and choose what costs to include . Include everything

    If its an unknown you should put in a reasonable projected figure I suggest

    This would produce a more accurate meaningful ROI

    Capital growth is included for me as well.....

    as when the asset is sold and all taxes paid that is when you have the pure ROI figure

    and to calculate that projected figure  helps make decisions going forward   -

    especially when you are comparing the ROI on property  against  other asset classes.

    That`s when property often shines above the rest

    I aimed for between 20% and 40%  pre tax ROI  but ended up exceeding that

    On some properties I attained infinity ROI  as it was all my return but it was all on OPM

    Now that is the best case ROI scenario in my book

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    Jonathan Clarke. http://www.buytoletmk.com


    Jonathan thanks.

    I've assumed (perhaps wrongly) I'll never sell, so I'll leave that bit out for now.

    I understand your point about maintenance and voids. When putting together a model for calculating yield I assumed 10% for maintenance and one month's void. Does that sound right to you for ROI?

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    10% is in the ball park yes but i would separate the two items

    Models will vary

    A new build may not require as much maintenance as  an ageing Victorian terrace

    And of course a good refurb eats into any ROI figure in the short term 

    So ROI figures always have to be put into context

    A month void per property per year is too much in my view

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    Jonathan Clarke. http://www.buytoletmk.com


    Jonathan, I get great benefit when reading your responses. If you get some time, would you answer my question in a different thread? I can't attach a link but it is on this forum called "Deal Analysis"

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    Hse 1 ROI is 3271 divided by 84277 which comes to 3.8% Hse 2 ROI is 3271 divided by 82364 comes to 3.9% As a minimum you need to get £375 NET profit per month for every £100k you invest. 4% net return is not great.

    Are you sure you have deducted ALL costs?

    Boiler, insurance, repairs, etc If its an old house, there are always updates to comply with law, health and safety. You normally get this net return on modern flats in city centre, because service charges are high, so return is lower. However, you do get good capital appreciation to make up for this.

    I would say the cost of houses are cheap, (because Hull is inexpensive area) but the rent is far too  low. You want to aim for a ROI of about 7% I don't think the cap appr will be much in Hull. (all comes down to jobs, supply and demand of property) if not many jobs, not much demand, keeps prices low.

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    Savvyinvestor, your mechanism for calculating ROI is the most random I have ever seen.

    The ‘investment’ in ROI is the money you are putting in to the deal. You are calculating ROI off of the value of the asset - this is completely inconsequential to the ROI.

    Calculating ROI informs you whether you should be putting your money in stocks, bonds, funds, property or your own business for the best return.

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    You can calculate it 2 ways! Whichever you prefer. I would prefer to do it the traditional way, so all returns are comparable. ps) estate agents do it my way, if they are discussing a property for sale, and the rent you can get. There is gross return and net return.

    I prefer it my way, as it is simpler. Taking money out of the deal makes it too complicated, and irrelevant, in my opinion. It is, at the end of the day, a matter of opinion which you prefer to use.

    Saying a MINIMUM NET return of £375 per £100k invested, is clear and simple.

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    You’re talking about yields, not ROI. Yields, like turnover, mean absolutely nothing to me. I think people get way to hung up on them. EA use them because they can’t give a meaningful ROI - they never know how much money people are putting into a deal. 

    The term ROI is explicit to the return you get from your money applied. It is effectively your interest rate on money invested...not unlike a bank acount. The value of the asset is inconsequential (presuming you exclude HPI)

    I have been investing in Stocks for many years and know I can average 10-13% return on my money for no/little effort. To be able to justify any investment in property, I need to beat this ROI. The yield of a property will never tell me if I am beating this target - it depends on mortgage rates available for that property, SDLT, solicitor fees, Service Chatges, management fees, etc.

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