Purchase assumptions
| Purchase price | £300,000 |
|---|---|
| Interest-only mortgage | £150,000 |
| Equity contribution | £150,000 |
| Illustrative additional-property SDLT | £20,000 |
| Legal, survey, works and other costs | £8,500 |
| Total initial cash before reserve | £178,500 |
Rental and operating assumptions
| Monthly rent | £1,650 |
|---|---|
| Annual contractual rent | £19,800 |
| Occupancy | 95% |
| Collected rent | £18,810 |
| Management fee: 10% of collected rent | £1,881 |
| Service charge | £1,500 |
| Illustrative repairs provision | £2,000 |
| Mortgage interest at 5% | £7,500 |
Year-one pre-tax cash flow
£18,810 − £1,881 − £1,500 − £2,000 − £7,500 = £5,929
Gross yield6.6%
Pre-tax annual cash£5,929
Pre-tax cash-on-cash3.3%
The gross yield looks materially higher than the cash-on-cash return because it ignores vacancy, operating costs, mortgage interest and the purchase costs included in the investor’s cash.
What is still missing?
This simplified first-year illustration does not include personal income tax, insurance, mortgage product fees, compliance costs or an operating reserve. A full decision should also model future rent and cost changes, refinancing, major repairs and a possible sale.
Replace these assumptions with yoursAbout this example
Figures are illustrative and are used to explain the calculation. They are not a market forecast or recommendation.