How To Calculate Return On Investment

In this blog, I want to share with you how to calculate Return on Investment. Calculating ROI is one of the most important things you need to know to be a successful property investor, because it’s how you compare different investment opportunities.

I meet many investors who are investing but they don’t really understand Return on Investment, which is crazy. It’s one of the most important things you need to understand to make sure you buy the right investment properties. So let me explain how to work out Return on Investment and how you use it.

Work out  profit of your property

First you work out how much profit the property will make you every month. You look at what the rental income is and then you take off the cost of the mortgage, which is usually the biggest cost. Then you also take off the insurance and management fees. I don’t personally manage any of my own properties. I have other people do it for me because I want a passive income. The idea is when you buy an investment property, only buy something that makes you positive cash flow.

That means there must be profit at the end of the month. Now obviously you have to pay tax on that profit, but rather than take that into account because everyone’s got different tax rates, I’m going to do it without thinking about tax.

Once you know how much it makes each month, you can then multiply the monthly profit by 12 to work out the annual profit. You put that on the top of the Return on Investment formula.

Find out how much we need to invest to create an income stream

Then we need to consider, to create the income stream, how much do we have to invest to acquire that property in the first place? So we divide the annual profit by the initial investment – the initial investment we’re putting into the property. This includes the deposit, which is usually 25%. It includes the legal costs and closing costs. There’s also a stamp duty. It will also include anything we’ve done to the property to get it ready to rent.

We multiply the answer by 100 to give us a percentage figure. The higher the percentage figure, the better the deal.

You Might Buy A Property That Needs Renovation

One final thing to mention here is very often you might buy a property that needs a huge amount of renovation work. You’re literally taking it back to the bricks. You’re putting new electrics in, new plumbing etc. If you use this formula, the ROI might come out very low because you’re going to put so much money into the refurbishment.  However, because you’re spending money on the property and adding value, after a period of time typically 6 months, you can re-mortgage the property based on the new higher value.

This means that you’re increasing the borrowing, and so the interest you pay each month will go up. This then eats into the cash flow with the effect of you making less profit each month. However, because you’ve refinanced, you might get your initial deposit and some, or all of the refurbishment costs back out. If you have no money left in, then you have an infinite Return on Investment. That is of course the ideal.

“So don’t worry if you can’t get all of your money out, as long as there’s a high Return on Investment.”

Now, you can’t always do that. Very often, you have to leave some money in a project, but actually it might be a very high Return on Investment. Compared to the profit you’re making, the £10k of £20k left in there might give you a very, very high return. If it’s a high return, it means you could borrow that from someone else, give them a healthy return on their money and still make a lot of money yourself.

So don’t worry if you can’t get all of your money out, as long as there’s a high Return on Investment. Now you know how to do this, you can use this when assessing property opportunities and makes sure you are buying only the very best deals.

Join the UK’s Leading Property Investment Community

Want to stay ahead in the world of property investing? Get expert insights, tips, and updates delivered straight to your inbox. Be part of a thriving network of investors and take action towards your goals today!




Inherited a Property? – Don’t Sell Until You Watch This
Inherited a Property? – Don’t Sell Until You Watch This

One of the most common ways people get started with property investing is by inheriting a property. It might not have been planned, but for many, it’s the spark that begins their journey into building long-term wealth through bricks and mortar. The key is knowing what...

22 Questions You Should Ask Property Owners – Motivated Sellers UK
22 Questions You Should Ask Property Owners – Motivated Sellers UK

 Is the Seller Motivated? Is the seller motivated? It’s a question I always ask my students, because I believe you should only be buying properties from motivated sellers. These are people for whom speed and certainty matter more than squeezing every last penny out of...

Why You’re Still Not Getting Property Deals in the UK
Why You’re Still Not Getting Property Deals in the UK

Let’s start with a tough question: do you sometimes feel like you’re wasting your time with property investing? Maybe you’ve got the motivation, you’re putting in the hours, but you’re not getting the results you want. It’s frustrating, and you’re definitely not...

Are the Landlords Really the Bad Guys in 2025?
Are the Landlords Really the Bad Guys in 2025?

If you read the headlines or scroll through social media, it doesn’t take long before you stumble across people calling landlords greedy, heartless, or exploitative. We’re told they charge outrageous rents, ignore repairs, and treat tenants unfairly. No wonder some...

UK HMO Property vs. Airbnb – Which Strategy Makes You More Money?
UK HMO Property vs. Airbnb – Which Strategy Makes You More Money?

When it comes to property investing, two of the most profitable strategies are Houses in Multiple Occupation (HMOs) and short-term lets like Airbnb, also known as Serviced Accommodation (SA). Both offer unique opportunities to generate income, but they come with...

How One HMO Can Make You £100,000 Profit Annually – Mega Deals
How One HMO Can Make You £100,000 Profit Annually – Mega Deals

Richie Miller’s journey from Army officer to full-time property investor is a powerful example of scaling up strategically. Starting with a three-bed house, he quickly realised the potential of property investing and made the decision to go bigger. Today, he owns a...

HMO Licensing vs HMO Planning Conditions
HMO Licensing vs HMO Planning Conditions

In this Property Magic Podcast episode, Property Expert Simon Zutshi, continues on from his mini series all about Houses of Multiple Occupation (HMO's) in the UK Property Market. Whilst a lot of misconceptions are that 'everyone is doing it', 82% of the current...

Why Most People Fail at UK Property Investing – Common Pitfalls
Why Most People Fail at UK Property Investing – Common Pitfalls

Why do most people fail at property investing? My name is Simon Zutshi and I've been investing for 30 years, teaching people like you, how to become more successful investor for the last 22 years. Most people who want to invest in property miserably fail and just...

property investors network
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.