Starting assumptions
| Monthly rent | £1,650 |
|---|---|
| Management fee | 10% of rent collected |
| Annual service charge | £1,500 |
| Annual repairs provision | £2,000 |
| Interest-only mortgage | £150,000 at 5% |
| Reletting and turnover cost after a vacancy | £900 |
Three occupancy outcomes
| No vacancy | 1 month empty | 3 months empty | |
|---|---|---|---|
| Rent collected | £19,800 | £18,150 | £14,850 |
| Management fee | £1,980 | £1,815 | £1,485 |
| Service charge and repairs | £3,500 | £3,500 | £3,500 |
| Mortgage interest | £7,500 | £7,500 | £7,500 |
| Reletting and turnover cost | — | £900 | £900 |
| Pre-tax annual cash flow | £6,820 | £4,435 | £1,465 |
When does annual cash flow turn negative?
With the £900 turnover cost included, the property needs approximately £13,222 of collected rent to cover management and fixed costs. At £1,650 per occupied month, that is just over eight months of rent.
In this simplified example, around four empty months would consume the annual pre-tax cash surplus. Income tax, insurance, compliance costs or an unexpected repair could bring the break-even point forward.
One empty month is not always the same
A planned gap between tenants may involve cleaning, marketing and a new tenancy cost. An arrears case may still incur management or legal costs. A refurbishment void can coincide with a large cash outflow. Model the cause—not only the number of empty months.
Inflation can narrow the safety margin
If rent rises by 2% but fixed costs rise by 4%, break-even occupancy increases over time. Mortgage refinancing can have an even larger effect. Apply separate growth assumptions rather than increasing every item by one general inflation rate.
Instead of assuming permanent 95% occupancy, ask: how many empty months could I fund without using money needed elsewhere?
The £300,000 property and occupancy outcomes are illustrative and are used to show how lost rent and reletting costs affect cash flow.