Find Out What Return on Investment is & How it Impacts Your Property Business

When it come to Property investing return on investment (ROI) is calculated using the formula 'net rental per annum divided by cash required in the deal,' and is expressed as a percentage. Net rental is rental minus operating expenses: operating expenses including things like your mortgage cost, insurances etc.

It basically tells you how much cash you could potentially make in a year as a percentage of the money you have invested.

you are getting £2000 pa net rental and you put £15,000 in the deal in terms of deposit and buying fees, such as solicitors, stamp duty etc. So here is how that would work out on a cash on cash return basis.

£2,000 / £15,000 = 13% cash on cash return

This is quite low; you should really be aiming for 30% upwards on a cash on cash return.

For example,

£2,500 / £8,000 = 31% cash on cash return

This is a healthier return than the first example. The ideal scenario would be if you didn’t have to put any money in at all, in fact you got money back from the deal. So you were in the positive from day one. This is an infinite return on investment as it didn’t cost you anything at the outset.

Infinite returns on investment are happening everyday for shrewd property investors.

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