Assess whether a property is a good investment.
Look beyond headline rent and gross yield. Make the costs, assumptions, uncertainties and property-specific risks visible before deciding.
Headline yield is only the beginning.
This example is educational and illustrative. It is not financial, tax, mortgage, legal or investment advice; assumptions and personal circumstances require appropriate professional review.
I’m looking at a flat as a buy-to-let. The asking price is £220,000 and the current rent is £1,100 a month. Is that a good return?
Those figures imply a 6% gross yield, but that is not the return you would retain. Is the rent current and sustainable, and what do you know about the service charge, ground rent, lease, finance and likely operating costs?
The service charge is approximately £1,800 a year. I don’t yet know the ground rent or whether any major works are planned.
Subtracting only that service charge produces about 5.2% before every other cost. It should not be labelled a true net yield. We would need explicit assumptions for void periods, management, maintenance, insurance, finance, tax and acquisition costs—and should test more than one scenario.
What property risks should I investigate before going further?
For a leasehold flat, obtain and review the lease information, service-charge history, reserve fund, planned works and relevant building information. Also investigate condition, local rental demand and any licensing or letting restrictions. A solicitor, surveyor, mortgage adviser, accountant and qualified letting professional may each need to confirm different parts of the decision.