ROI on a £200,000 Rental Property

Expect roughly 5.8% annual total return — 3.3% yield plus 2.5% appreciation

A £200,000 rental property generating £850/month in rent, after expenses, delivers approximately 5.8% annual total return. That combines a 3.3% net rental yield with 2.5% annual capital appreciation. Not explosive growth, but it is a tangible asset producing regular income.

Breaking down the numbers

Gross rental income: £850/month = £10,200/year Gross yield: £10,200 ÷ £200,000 = 5.1%

Annual expenses eat into that:

Letting agent fees (10%): £1,020
Maintenance and repairs: £1,200 (0.6% of property value)
Insurance: £350
Void periods (1 month/year): £850
Gas safety, EPC, compliance: £180

Total expenses: ~£3,600/year Net rental income: £6,600/year Net yield: 3.3%

Add 2.5% capital appreciation (the UK long-run average): the property gains roughly £5,000 in value per year.

Total annual return: £6,600 + £5,000 = £11,600 on a £200,000 asset = 5.8%

With a mortgage: leverage changes everything

Most buy-to-let investors do not pay cash. With a 25% deposit (£50,000) and a 75% mortgage (£150,000) at 5%:

Mortgage interest: £7,500/year
Net rental income after mortgage: £6,600 − £7,500 = −£900/year (negative cash flow)
Capital appreciation: £5,000/year on the full £200,000

Your cash investment is £50,000. The total return is −£900 + £5,000 = £4,100, giving a cash-on-cash return of 8.2%. Leverage amplifies the return on your deposit, but you are subsidising the property from your own pocket by £75/month.

At 4% mortgage rates instead of 5%, the mortgage interest drops to £6,000, cash flow swings positive to £600/year, and cash-on-cash return rises to 11.2%.

Tax implications for UK landlords

Since April 2020, landlords can no longer deduct mortgage interest from rental income. Instead, you receive a 20% tax credit on mortgage interest payments. For higher-rate (40%) taxpayers, this significantly reduces the tax benefit:

Basic-rate taxpayer (20%): No change — the 20% credit matches what you would have deducted.
Higher-rate taxpayer (40%): You pay tax on gross rent at 40% but only get 20% relief on mortgage interest. On £10,200 gross rent with £7,500 mortgage interest, your tax bill is roughly £3,030 instead of the £1,080 it would be under the old rules.

Additionally, capital gains tax on property sales is 18% (basic rate) or 24% (higher rate) after a £3,000 annual allowance.

How rental property compares to index funds

Metric	£200K rental property	£200K in index funds
Annual return	~5.8% (leveraged: 8–11%)	~7–10%
Income	£6,600/year net	~£4,000/year dividends
Effort	High (management, repairs)	Minimal
Liquidity	Months to sell	Sell in minutes
Leverage	75% LTV available	Limited
Tax efficiency	Complex, Section 24	ISA = tax-free

Index funds win on simplicity and liquidity. Property wins on leverage and the psychological benefit of a tangible asset. Neither is clearly better in all cases.

Key risks

Void periods: Two months empty costs £1,700 and can turn a profitable year into a loss.
Major repairs: A new boiler (£3,000) or roof issue (£5,000+) can wipe out a year’s profit.
Interest rate rises: A 2% rate increase on a £150,000 mortgage adds £3,000/year.
Regulation: Increased energy efficiency requirements (EPC C by 2028) may require capital expenditure.

Use the ROI Calculator to model your specific rental property numbers, including purchase costs, renovation, and expected rent.