We all love a good spreadsheet. Plugging in the purchase price, the expected rent, and the mortgage rate to see that double-digit gross yield pop out is an exciting part of the process. But gross yield is a vanity metric. It’s the net yield—the cash actually left in your pocket after everyone else has taken their cut—that pays the bills.
And getting to an accurate net yield means being brutally honest about the hidden costs of property investment.
The Reality of Maintenance
Let’s start with maintenance. Many new investors allocate a token 5% of the rent for repairs and assume that’ll cover it. It won’t. If you’re buying older, Victorian terraces—the staple of the UK buy-to-let market—things will break. Roofs leak, boilers pack up, and damp rears its head.
A more realistic approach is to set aside 10% to 15% of the gross rent, depending on the age and condition of the property. If you don’t spend it one year, keep it in the pot; you’ll definitely need it the next.
Factoring in Void Periods
Then there are the void periods. Your spreadsheet might assume 12 months of uninterrupted rental income, but the reality is that tenants move on. Even if you find a new tenant immediately, you’ll likely have a week or two of empty property while you clean, paint, and sort the paperwork.
During that time, you’re still paying the mortgage, the council tax, and the standing charges for utilities. Always model your returns on an 11-month occupancy rate to be safe.
The Cost of Compliance
Compliance costs are another area that frequently gets underestimated. It’s not just the initial EPC, gas safety certificate, and EICR. It’s the cost of the remedial work required to actually pass those checks.
With regulations tightening, particularly around energy efficiency, the cost of keeping a property legally compliant is only going one way.
Valuing Your Own Time
Finally, factor in the value of your own time. If you’re self-managing to save the 10-12% letting agent fee, you need to treat that as a cost. Taking calls from tenants on a Sunday evening, chasing arrears, and organising plumbers isn’t free; it’s a second job.
If your deal only stacks up because you’re working for free, it’s a poor investment. Be conservative with your estimates, build in a hefty contingency, and if the numbers still look good, then you might just have a deal worth pursuing.
