Investment Property - Return on Investment Calculator
Created to provide an illustration of potential returns on an Investment Property
           
IMPORTANT :This sheet is provided for guidance only and should not be relied upon in any way, always obtain professional & specialist advice before making any decisions or incurring expense.
Instructions - edit the blue figures to match your expenses & receipts
Input Purchase price of Property Input address here if required    
Input the initial acquisition costs eg legal, stamp duty    
Initial Refurbishment Costs   total outlay: including initial costs
 Input the  rent & freq (eg 12=monthly)
 Gross annual rent      
Estimated amount of rent lost as void % per annum reduction    
Adj Gross Rent after voids      
Input your est. annual expenses    
Adj. potential Rental Income after costs    
Input Initial Loan Amount
Input the initial mortgage rate % pa.   rests pa
Input est. term - enter 0 if interest only    
Est. Gross Mortgage Payments    
 Income after expenses, voids & interest    
 Total initial investment      
  After years (use the maximum 5 for accuracy)  
Future Est. Value or Sale Price % pa growth on original value
Less outstanding mortgage   LTV  
Est. cost of sale   (eg legal, agency, lender)    
Potential Future Value of Investment      
Potential Growth of Investment over term.    
 Potential Return on Investment (RoI) per annum (including level net income)    
           
SUMMARY 
   
   
     
           
           
EXPLANATION & POINTS TO NOTE
All results are before tax. All regular payments are assumed to be level.  Voids are "no rent" periods.  
           
If mortgage interest can be deducted against rental income for tax purposes. It may be possible    
for the all mortgage interest to be tax deductable thus reducing the effective cost of borrowing    
by the tax rate payable.  For example a gross mortgage rate of 8% pa nets down to 6% pa    
after 25% tax relief.   Expenses may also be tax deductable and thus increase ROI.    
           
Note that a gearing (or leverage) advantage only works if the net yield plus the property growth     
exceeds the mortgage interest rate after allowing for expenses to be amortised.  A quick way    
of determining this, is to look at the return with zero mortgage and check that it is lower    
than the RoI with a mortgage.  A message appears under the summary to indicate whether    
borrowing provides a higher return.   The RoI with no mortgage is displayed in the summary note.    
           
If gearing is positive, the higher the loan the better.  But if the amount borrowed approaches    
the property value, the return may be excessive and the calculation of return on capital    
will fail (indicated by an error message).        
           
The term should be restricted to less than 5 years as no account has been taken    
of increasing rental income.  The yield therefore falls as the value of the property rises.    
The longer the term, the more effect the lowering yield will have.  But in practise,     
rents could well rise with inflation wheareas the mortgage interest will fluctuate    
around an average level figure since the debt it services remains constant.   This means    
the net income may rise by more than inflation.      
           
If one assumes that the net income will rise with the property value, the effective return on    
capital will be that calculated for a one year term, ignoring expenses.  Note that higher    
yielding properties may well grow at a lower rate.      
           
Experienced spreadsheet users may like to use the backsolve feature to derive some    
of the entered figures from a desired return on capital figure.      
           
This worksheet & information should be used for guidance only and specialist advice from an Independent Financial Advisor (IFA) obtained before making a commitment or any decisions about whether to invest in property or any other type of investments
           
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE