Thinking about buying a rental or checking if your existing buy‑to‑let is making money? The first thing you need is a clear cash flow analysis. It’s just a tidy way to add up every pound that comes in and goes out, then see what’s left. No fancy formulas, no jargon—just the numbers that matter to you.
Cash flow is the difference between the money you earn from a property and the money you spend to keep it running. Income includes rent, parking fees, storage rentals, and any short‑term let earnings. Expenses cover mortgage payments, council tax, insurance, maintenance, management fees, and even the occasional vacancy loss. When you subtract expenses from income, the result is your net cash flow.
1. List all income sources. Start with the advertised rent. Add any extra income streams—pet fees, laundry machines, or a garden garden‑share. Use realistic figures; if the market rent is £850 but you’re charging £800, stick with £800.
2. Gather every expense. Break them into two buckets: fixed (mortgage, insurance, council tax) and variable (repairs, letting agent fees, void periods). For variable costs, use an average based on past years or a safe estimate like 10‑15% of the rent.
3. Account for vacancies. Nobody pays rent when a tenant leaves. A common rule is to assume a 5‑10% vacancy rate. Multiply your yearly rent by that percentage and treat it as a loss.
4. Do the math. Add up all income, then subtract the total expenses. The number you get is your net cash flow per month or year. Positive? You’re making money. Negative? You need to cut costs, raise rent, or reconsider the deal.
5. Check your return on investment (ROI). Divide the annual net cash flow by the total cash you’ve put into the property (deposit, fees, renovations). Multiply by 100 to get a percentage. This helps you compare the deal with other investment options.
Let’s try a quick example. You buy a two‑bed flat for £150,000 with a 25% deposit (£37,500). The mortgage is £600 a month, rent is £850, management fees are £85, insurance £20, and you estimate £50 for repairs and a 5% vacancy loss (£51). Total expenses: £600+£85+£20+£50+£51 = £806. Net cash flow: £850‑£806 = £44 per month, or £528 per year. ROI = (£528 ÷ £37,500) × 100 ≈ 1.4%.
That ROI looks low, so you might look for a property with higher rent, lower purchase price, or fewer fees. The analysis tells you exactly where the numbers are choking your profit.
When you browse our tag archive, you’ll see articles that walk you through similar calculations for different scenarios—like buying with a £36,000 salary, understanding mortgage borrowing limits, or figuring out shared‑ownership payments. Each post gives real‑world numbers you can plug into this simple cash flow template.
Bottom line: a cash flow analysis is the quickest test to see if a property works for you. It strips away the hype and shows the money you’ll actually have in your pocket. Do it for every potential buy, update it each year, and you’ll keep your portfolio healthy without any guesswork.
