The one percent rule is a great way to assess whether a property is worth investing in. This rule states that the rental income should be at least 1% of the total cost of the property. Buy-to-let mortgages usually require 145% rental coverage with 5% interest, which usually requires a 40% deposit. In areas where property prices are lower compared to rents, a minimum deposit of 25% is needed to avoid exceeding the mortgage amount. I have had 3 rental properties for 6 years and my total vacancy period was only 4 days in that time.
To calculate the buy-to-rent return, you need to know two figures: the expected annual income from renting the property and the price you paid for it. To calculate the mortgage debt, simply add up the amount of money needed to pay off the mortgage (including early repayment fees). To calculate the principal of your home, review your mortgage repayment schedule to find out how much of your payments went towards paying off the principal. Knowing how to calculate buy-to-rent return will help you decide if a property is worth renting, while knowing the capital gain will help you decide if it's worth selling.
