Every experienced investor runs the numbers before falling in love with a property. A Buy-to-Let calculator is simply the tool that turns "this looks like a good deal" into "this is a good deal, and here's why."
What Goes Into a BTL Calculator
- Purchase price — the base figure everything is measured against
- Deposit — typically 20–25% of purchase price
- Mortgage — the borrowed balance and its structure (interest-only vs repayment)
- Interest rate — your actual product rate, separate from the lender's stress rate
- Monthly rent — the income side of the equation
- Insurance — landlord buildings and contents cover
- Maintenance — an ongoing reserve for repairs and upkeep
- Service charges — ground rent and building service charges (leasehold flats)
- Letting agent fees — typically 8–15% of rent for full management
- Void periods — weeks or months where the property sits empty
- Tax — income tax on rental profit, shaped by Section 24
Gross Rental Yield
Formula: Annual Rent ÷ Purchase Price × 100
Worked example:
- Monthly rent: £2,000
- Annual rent: £24,000
- Purchase price: £400,000
- Gross yield: £24,000 ÷ £400,000 × 100 = 6%
Useful for a quick comparison, but it tells you nothing about what you actually keep. It ignores the mortgage, every running cost, and tax entirely.
Net Yield — the Number That Actually Matters
Formula: (Annual Rent − Annual Operating Costs) ÷ Purchase Price × 100
| Item | Annual cost |
|---|---|
| Gross rent | £24,000 |
| Letting agent fees (10%) | −£2,400 |
| Insurance | −£350 |
| Maintenance reserve | −£1,000 |
| Service charge (if leasehold) | −£1,200 |
| Void period (4 weeks) | −£1,850 |
| Net operating income | £17,200 |
Net yield = £17,200 ÷ £400,000 × 100 = 4.3%
A full 1.7 percentage points lower than the gross figure — and this example hasn't even deducted mortgage interest or tax yet.
Cash-on-Cash Return
Yield measures return against the full purchase price, but you didn't pay that — you paid a deposit. Cash-on-cash measures your actual profit against your actual cash invested.
Formula: Annual Net Cash Flow ÷ Total Cash Invested × 100
Using the example above with a 25% deposit (£100,000) plus £8,000 in purchase costs:
- Total cash invested: £108,000
- Net operating income: £17,200
- Less annual mortgage interest (£300,000 loan at 5.5%): −£16,500
- Annual cash flow before tax: £700
- Cash-on-cash return = £700 ÷ £108,000 × 100 = 0.65%
This is the number that often reveals a deal is far weaker than the headline 6% gross yield suggested — and it's before Section 24 has even been applied.
Stress-Testing
Lenders already stress-test you as part of the mortgage approval — but that's a lending decision, not a business plan. Buy-to-let mortgages are assessed using an Interest Coverage Ratio (ICR): typically 125% for basic-rate taxpayers and limited companies, 145% for higher-rate personal holdings, tested at a notional rate around 5.5%.
What you should additionally stress-test yourself:
- Higher interest rates — model cash flow at 1–2 percentage points above your current rate
- Several weeks of vacancy — at least 4–6 weeks of void per year as standard
- Maintenance costs — a running reserve of ~1% of property value per year
- Unexpected repairs — a separate emergency fund on top of routine maintenance
Putting It Together
- Gross yield tells you if a property is worth a second look
- Net yield tells you if it's actually profitable
- Cash-on-cash return tells you how hard your deposit is working
- Stress-testing tells you whether the deal survives a bad year
This article is for general information and does not constitute financial or tax advice. Mortgage terms, tax treatment, and lender criteria vary and change over time.
