How-To Guides6 min read

Buy-to-Let Calculator: What Numbers to Run Before You Buy

Before you commit to a buy-to-let property, you need to run the numbers. Here's exactly what to calculate—yield, cash flow, financing costs, and more—with a step-by-step guide.

A buy-to-let (BTL) investment is one of the most accessible routes into real estate. But “accessible” does not mean “safe.” Plenty of landlords buy without running the numbers and spend years subsidizing a property that was never going to work at the purchase price they paid.

This guide covers exactly what to calculate before making an offer, in the order you should calculate it.

Start with Gross Rental Yield

Gross yield is the quickest filter. It tells you the raw income return before any costs:

Gross Yield = (Annual Rent ÷ Purchase Price) × 100

A property listed at £250,000 that rents for £1,200/month has a gross yield of (£14,400 ÷ £250,000) × 100 = 5.76%. Below 4–5% in most markets is a warning sign that net returns will be very thin.

Then Calculate Net Yield

Net yield deducts operating expenses from the income before dividing by the purchase price:

Net Yield = ((Annual Rent − Annual Costs) ÷ Purchase Price) × 100

Annual costs include management, insurance, maintenance, void periods (vacancy), letting agent fees, and service charges if applicable. Net yield is a much more honest picture than gross yield. A 6% gross yield property with high management and void costs may net only 3.5–4%.

Run the Mortgage Stress Test

In the UK, lenders typically require that rental income covers 125–145% of the monthly mortgage payment (the “interest coverage ratio” or ICR). But don't just hit the lender's minimum. Make sure you have real positive cash flow on top:

Calculate your monthly P&I payment at your expected rate
Also model it at +1% and +2% to account for rate changes
Ensure cash flow is positive under both scenarios

Look Beyond Yield: Total Return

Net yield measures annual income return. But BTL total return includes capital appreciation over time. A property in a high-demand area with modest yield today may deliver a strong total return thanks to price growth. Use the IRR metric to combine cash flows and appreciation into a single annualized return figure. The analyzer does this automatically.

Key Takeaways

1Gross yield is a quick screen; net yield (after all costs) is the real income return number.
2Always model your mortgage payment at current rate AND at +1–2% to stress test affordability.
3Void periods (vacancy) and management fees are the biggest costs investors forget to include.
4IRR captures both income and appreciation. It's the most complete BTL performance metric.

Ready to run these numbers on a real deal?

The Real-Estate Analyzer calculates every metric covered in this article—instantly, for free.

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