How to calculate rental cash flow before buying

Rental cash flow is the rent you actually expect to receive, minus every cost of running the property, minus the full monthly mortgage payment. To estimate it before buying, start with a realistic rent, take off an allowance for empty periods, then subtract fees, insurance, repairs, compliance and the mortgage. What is left is your cash flow before personal tax. It is often far smaller than the gap between the rent and the mortgage.

This guide shows each step, then works through an illustrative example. If you already own a rental and want to check what it is really making from your records, read How much is your rental property really making.

Rent is not the same as cash left over

The figure on the listing is gross rent: the rent charged before any costs. It is the starting point, not the answer. Three things sit between gross rent and the cash you keep:

1. Rent you do not collect. Empty weeks between tenants, and any arrears.
2. Operating costs. Everything it costs to let and maintain the property.
3. Finance costs. Your mortgage payment.

Keep four other measures separate so they do not blur together:

• Gross yield = annual rent ÷ property price × 100. Useful for comparing properties quickly. It ignores all costs.
• Net yield = (annual rent minus operating costs, excluding the mortgage) ÷ price × 100. In this article, annual rent for net yield means rent after the voids allowance.
• Capital growth = any change in the property's value. It is separate from cash flow.
• Tax is separate again. Cash flow in this article is always before personal tax.

Step 1: Start with an evidenced rent

Use rents for similar, currently let properties in the same street or area, not the highest asking rent you can find. Letting agents can give a rental valuation. If the property needs work before it can be let, the rent should reflect its condition on the day a tenant moves in.

Step 2: Allow for voids

A void is a period with no tenant and no rent. Even good properties have gaps between tenancies, and you still pay the mortgage, insurance and often council tax and utilities during that time.

A simple approach is to assume a number of empty weeks each year and reduce annual rent by that amount. One month a year is a common planning assumption, but it is only an assumption. Areas with weaker tenant demand, or property types that let slowly, may need more.

Step 3: List the operating costs

Operating costs are everything except the mortgage. Typical lines are:

• Letting and management fees. Usually a percentage of rent collected. Check whether quotes include VAT, and whether there are extra charges for finding a tenant, renewals or inspections.
• Landlord insurance. Buildings cover, and contents or liability cover where needed.
• Repairs and maintenance. Older properties, and those with older boilers, roofs or windows, usually cost more. Budget for this every month, even if nothing breaks in the first year.
• Safety checks and compliance. The checks and certificates required where the property is located. Requirements differ between England, Scotland, Wales and Northern Ireland, so check the rules for your area.
• Ground rent and service charges. Common for leasehold flats, and they can rise. Ask for recent demands and any planned major works.
• Other running costs. Accountancy, bank charges, and any bills you agree to pay.

Step 4: Use the full mortgage payment

For cash flow, deduct the whole monthly mortgage payment, whatever it is made of.

• Interest-only: you pay only interest each month. The loan itself is still owed at the end of the term.
• Capital repayment: each payment covers interest plus part of the loan. Your debt falls over time, which builds equity, but the higher payment still leaves your account each month.

Two further points:

• Arrangement and broker fees. If you pay them upfront, they are part of your cash in, not your monthly cash flow. If you add them to the loan, your monthly payment rises, so use the higher figure.
• Rates change. Fixed rates end. Test your numbers at a higher rate than the one on offer today, so you can see how much room you have. Take advice from an FCA-authorised mortgage adviser on the product itself.

Step 5: Keep one-off buying costs separate

Stamp duty (SDLT in England and Northern Ireland, LBTT in Scotland, LTT in Wales), legal fees, the survey and any initial works are paid once. They do not belong in monthly cash flow, but they do belong in the total cash you put in, which you need for measures such as cash-on-cash return. Our guide to how much money you need to buy your first rental property covers these costs.

Worked example

Illustrative example. These figures are invented to show the method. They are not a real property, a forecast or a typical return.

Assumptions:

• Purchase price: £200,000 (freehold house, so no ground rent or service charge)
• Deposit: 25% (£50,000), so the mortgage is £150,000
• Mortgage rate: 5.0%, assumed for illustration only, not a current market rate
• Mortgage term for the repayment version: 25 years
• Rent charged: £1,000 a month (£12,000 a year)
• Voids: one month a year
• Management fee: 12% of rent collected, including VAT
• Insurance: £300 a year
• Repairs and maintenance: £900 a year
• Safety checks and compliance: £240 a year
• Other running costs (accountancy, bank charges): £180 a year
• Buying costs paid upfront and excluded from cash flow

Now subtract the mortgage. The same property gives very different answers:

For the same property:

• Gross yield: £12,000 ÷ £200,000 × 100 = 6.0%
• Net yield: (£11,000 minus £2,940) ÷ £200,000 × 100 = 4.0%

What this shows:

• A 6% gross yield turned into £47 a month on interest-only, before tax.
• On a repayment mortgage, the property needs about £205 a month from the owner. Part of that goes towards paying off the loan, but it is still cash out each month.
• A one percentage point rise in the rate turns the interest-only version negative.
• One unexpected repair, such as a new boiler, could wipe out years of the interest-only surplus.

None of this means the property is a good or bad purchase. It shows what the estimate depends on, and which assumptions to check first.

What cash flow before tax leaves out

Income tax is worked out on rental profit, not cash flow, and the two are different.

• Allowable expenses. Costs incurred wholly and exclusively for the letting, such as repairs, insurance and agent fees, are generally deductible. Capital costs, such as buying the property or improving it, are not deductible from rental income.
• Mortgage capital. GOV.UK states that only the interest element of a mortgage payment can be set against rental income. Capital repayments are never deductible.
• Mortgage interest for individuals. Individual landlords of residential property cannot deduct mortgage interest and other finance costs from rental income. Instead they receive a tax reduction at the basic rate (currently 20%), worked out on the lowest of their finance costs, their property profits and their adjusted total income. This is often called Section 24. It applies to individuals, not companies. If you are considering a company, see our guide to buy-to-let through a limited company.
• From 6 April 2027. The Finance Act 2026 creates separate income tax rates for property income: 22% property basic rate, 42% property higher rate and 47% property additional rate. The government says these apply in England, Wales and Northern Ireland, and the Act lets the Scottish Parliament and the Senedd set their own property rates. The Act also changes the finance cost tax reduction to the property basic rate.

In the interest-only version of the example, the cash flow is £560 a year, but rental profit for tax would be worked out before deducting the £7,500 of interest. That is roughly £8,060, with a separate tax reduction for the interest. Your tax bill depends on your other income, so speak to a qualified tax adviser before relying on any after-tax figure.

A quick checklist before you rely on your estimate

• Rent is based on comparable let properties, not asking prices.
• Voids are included, even if the property is currently tenanted.
• Management fees include VAT and any extra charges.
• Repairs are budgeted every month, more for older properties.
• Ground rent and service charges come from recent demands, not the listing.
• The mortgage payment matches the type you will actually use.
• You have tested a higher mortgage rate.
• One-off buying costs are in your total cash in, not your monthly figures.
• Capital growth and tax are kept on separate lines.

How PROXERA can help

The PROXERA buy-to-let calculator runs this same calculation for a property you are considering. Enter the price, deposit, mortgage, rent, voids, management, insurance, maintenance and any ground rent or service charge, and it shows monthly cash flow, gross and net yield, cash-on-cash return and total cash in. You can switch the repayment type to compare interest-only and capital repayment, as in the example above.

Estimate your monthly cash flow with the buy-to-let calculator

For more on getting started, see our guide for first-time investors and is buy-to-let worth it in 2026.