The exit proceeds waterfall
Selling costs can include estate-agent and legal fees, mortgage charges and expenditure needed to prepare the property for sale. The remaining mortgage depends on whether the loan is interest-only or repayment and on any additional principal payments.
Translate the sale price into annual growth
A future value can look plausible without showing the growth rate it assumes. Convert it into a compound annual rate from purchase price to sale year. Compare that assumption with long-run and regional evidence, but do not treat historical growth as a forecast.
Account for the mortgage correctly
An interest-only loan will normally leave the original principal outstanding unless voluntary repayments are made. A repayment loan should have a lower outstanding balance calculated from the payment schedule. In both cases the debt is deducted from sale proceeds.
Estimate the gain separately from cash proceeds
Capital gain and cash received are different. The gain can include acquisition and eligible improvement or selling costs under applicable rules; the cash proceeds must also repay the mortgage. GOV.UK explains that eligible buying, selling and improvement costs may reduce the taxable gain, while normal maintenance does not qualify in the same way. See the official guidance.
Always run a downside
Reduce the assumed exit price by 10% and observe both the net proceeds and IRR. Because debt is repaid before equity, a 10% fall in property value can cause a larger percentage fall in the equity proceeds. This is financial leverage working in reverse.
If there is no intended sale
A long-term model still needs an end date to calculate IRR or total value. Our calculator uses a 30-year modelling period when no explicit exit is selected and explains that basis in the results. It should not be interpreted as a recommendation to hold for 30 years.
Test an exit price