How to Calculate ROI on Real Estate (With UK Examples)
Property ROI is harder to calculate than stock ROI because the costs hide — stamp duty, voids, agent fees, mortgage interest. Here's how to do it properly with real numbers.
The two ways property makes money
Property returns come from two sources, and you need both in your ROI calculation:
- Capital growth — the property is worth more when you sell than when you bought it.
- Rental yield — the net rental income you collect while holding it (rent minus all running costs).
Ignoring either one gives you a misleading number. A flat that yields 3% a year in rent but appreciates 5% a year is returning 8% — not 3%.
The full formula
Property ROI = (Capital Gain + Net Rental Income) ÷ Total Cost × 100
Where Total Cost includes everything you spent to acquire and prepare the property, and Net Rental Income is rent collected over the whole holding period minus every recurring cost.
Example: a UK rental property held for 5 years
You buy a £200,000 terraced house in the North of England as a buy-to-let. Here's the full picture:
Costs up front
- Purchase price: £200,000
- Stamp duty (second home, 5% band): £10,000
- Legal fees + surveys: £2,500
- Light refurbishment: £5,000
- Total cost: £217,500
Rental income over 5 years
- Rent: £900/month × 60 months = £54,000 gross
- Minus agent fees (10%): £5,400
- Minus insurance, maintenance, gas safety: £4,000
- Minus 4 weeks of voids (average): £900
- Minus mortgage interest (if mortgaged): say £12,000 over 5 years
- Net rental income: £31,700
Sale after 5 years
- Sale price (4% annual growth): £243,300
- Minus selling costs (agent + legal): £4,500
- Net sale proceeds: £238,800
ROI calculation
- Capital gain: £238,800 − £200,000 = £38,800
- Net rental income: £31,700
- Total profit: £38,800 + £31,700 = £70,500
- ROI: (£70,500 ÷ £217,500) × 100 = 32.4% over 5 years
- Annualised: ((288000 ÷ 217500) ^ (1/5)) − 1 = 5.8% per year
Open the ROI calculator with these numbers →
The leverage question
The example above uses total property cost as the denominator. But if you put down a 25% deposit (£54,375) and mortgaged the rest, your cash invested is much smaller. Calculating ROI on cash invested (rather than total property value) makes leveraged property look far better — but it also magnifies your losses if property falls.
Both numbers are valid. The "ROI on total cost" is the conservative, property-level return. The "ROI on cash invested" is your personal return as an investor. Always be clear which one you're quoting. Use the mortgage calculator to model how different deposit sizes affect your monthly costs.
The costs people forget
- Stamp duty — 2–12% in England depending on price, plus 3% surcharge for second homes. Check current bands on gov.uk.
- Voids — assume at least 1 month per year empty, more in weaker rental markets.
- Maintenance — 1% of property value per year is a reasonable long-run estimate.
- Agent fees — 10–18% of rent for full management, or zero if you self-manage.
- Selling costs — estate agent fees (1–3% + VAT) plus conveyancing.
Frequently asked questions
How do you calculate ROI on a rental property?
ROI on a rental property = (Net Profit / Total Cost) × 100. Total cost includes purchase price, stamp duty, legal fees, and renovation. Net profit includes capital gain plus net rental income (rent minus mortgage interest, maintenance, voids, agent fees, insurance).
What is a good ROI on rental property UK?
A net ROI of 5–8% annualised is considered good for UK rental property after all costs. Gross rental yield of 5–7% is typical in most of the UK; London yields are lower (3–4%) but capital growth has historically been higher.
Does stamp duty affect property ROI?
Yes. Stamp duty is a real cost that reduces your ROI. For a £300,000 second property in England, stamp duty is roughly £14,500 (with the 3% surcharge). This must be included in your total cost when calculating ROI.
Bottom line
Property ROI only means something if you include every cost — stamp duty, voids, maintenance, agent fees, mortgage interest, selling costs. Skip any of those and you'll overstate your return. Use the ROI calculator with your total cost and final value to get both the total ROI and the annualised return, and compare the annualised number against other asset classes to see if property is actually your best option.