ROI in Property Investment: What Really Counts

In property investment, "Return on Investment" (ROI) is one of the most critical metrics to measure success. Yet, while many investors focus solely on yield—the percentage return generated from rental income—yield alone doesn’t tell the full story. 

At PropInvest Co., we’ve worked with numerous clients and investors to create high-performing portfolios, and one thing is clear: understanding the full picture of ROI can make or break your investment decisions.

In this guide, we’ll break down how ROI is calculated, the components that go into a strong return, and why a deeper understanding of all the factors is key to successful property investing. 

Let’s explore how we approach ROI with insights from our recent projects.

1. What is ROI? A Simple Breakdown

ROI is a calculation used to evaluate the efficiency of an investment or compare the efficiency of several different investments. In property investment, it’s typically expressed as a percentage and helps you understand how well your money is working for you.

Let’s break this down:

• Net Profit: This includes rental income, minus all operating expenses (e.g., management fees, maintenance, insurance, and taxes).

  
  

• Total Investment: This is the total amount of money you’ve put into the property, including the initial purchase price, renovation costs, legal fees, and other related expenses.

However, focusing solely on rental yields is a common trap. While yields are important, they don’t account for other crucial elements like property appreciation, refurbishment costs, or exit strategies.

2. Yield vs. Total ROI: Why Yield Alone Isn’t Enough

Yield, often measured as a percentage of rental income relative to the property price, can give a good snapshot of short-term returns. However, yield alone doesn’t account for the bigger picture—like capital growth, refurbishment costs, or the long-term value of your investment.

Here’s why yield shouldn’t be the only focus:

• Capital Growth: The increase in property value over time can significantly boost your ROI. For example, many of our investors focus on projects where long-term capital growth outweighs the initial yield.

  
  

• Refurbishment ROI: When refurbishing properties, like we often do in our projects, the value uplift from the renovation itself is crucial to consider. In fact, our BRRR strategy (Buy, Refurbish, Rent, Refinance) is built on the concept of adding value through refurbishment, which enhances overall ROI far beyond the rental yield alone.

3. Other Factors That Impact ROI

In addition to capital growth and rental yield, there are other factors that are just as vital to understanding your true return on investment.

• Cost of Borrowing: If you’re financing your investment with a mortgage or loan, the interest rates and borrowing terms will affect your returns. At PropInvest Co., we always work with investors and our property finance partners to find the best financing solutions that align with their goals, be it through bridging loans, buy-to-let mortgages, or other financing strategies.

  
  

• Time Investment: Time is money—literally. For example, a longer refurbishment project can delay the point at which you start receiving rental income or returns from a property sale. It’s essential to factor in time frames when calculating your ROI.

  
  

• Ongoing Maintenance and Expenses: The costs of repairs, property management fees, and general upkeep need to be included in your calculation. Neglecting these expenses can lead to overestimating your potential returns.

4. Real-Life Example: A PropInvest Co. Project

Let’s look at a recent project we handled for an investor in Halifax:

• Property Purchase Price: £120,000

• Refurbishment Costs: £25,000

• Additional Costs: £5,000 (legal fees, stamp duty, etc.)

Total Investment: £150,000

Initial Yield Calculation: With a monthly rental income of £800, the yield might seem promising:

However, after refurbishing the property, the value increased to £200,000. This creates an opportunity for refinancing and releasing equity, enhancing the total ROI:

• Capital Growth: £50,000

• New Rental Income: £850/month post-refurbishment

After refinancing and leveraging the added value, the investor could pull out a significant portion of their initial capital and use it for another project, boosting the overall ROI to 15% annually—a far better picture than yield alone could provide.

5. Exit Strategy: The Unsung Hero of ROI

One aspect often overlooked in calculating ROI is the exit strategy. Whether you choose to sell the property after a period of capital appreciation or continue to hold it for long-term rental income, your exit plan has a significant impact on your returns.

At PropInvest Co., we always work closely with investors to define the right exit strategy, whether it's holding for rental income, refinancing, or selling at a profit. Having a clear exit plan ensures that you maximise your returns, whatever your long-term goals may be.

Why ROI is More Than Just a Number

ROI in property investment is not just about rental yield. It's about understanding all the elements that contribute to your financial success—capital growth, costs, and timing, to name just a few. 

At PropInvest Co., we specialise in helping investors get the full picture of their investment’s potential, guiding them every step of the way, from sourcing the property to managing renovations and planning the best exit strategy.

Ready to maximise your returns? 

Whether you’re new to property investment or looking to take your portfolio to the next level, we offer a fully hands-off service designed to help you succeed. 

Contact us today to learn how we can help you grow your wealth.

Book a discovery call or visit our contact page to get started.