Are you making money on your investment property?

Is your investment property actually an asset? The Donegans have a simple definition for an asset: does it put money in your pocket?

So many of the people that come on Rebel Finance School ask us about their investment properties. Should I keep it? Should I sell it? What should I do with it?

For us it always comes back to the maths. Is it actually making a return? How much are you making? Not the back of the envelope type maths that says rent minus a rough guess of the expenses, the proper calculation to show what you are making.

If you are making a monthly loss on your rental property, what are you hoping for? After ten years, the value will increase, and you can sell it for a huge profit? Have you done the sums to know if you are putting in £200 / $200 a month for ten years how much will it really have to have gone up by to make sense? So many people don’t know the numbers for their property, and this is the first step! Let’s look at the cold, hard maths and the data and make data-driven investment decisions. This calculator will help you see what the return on your equity in the property actually is.

There is an opportunity cost wherever you deploy your capital. What I mean is that you can only invest the Pounds or Dollars you have once. If you invest in property, you are actively choosing that over index funds.

The opportunity cost is what you could be doing with your hard-earned cash instead. In the UK, at least, it is difficult to own property in a tax-efficient manner, but you can own index funds in a tax-advantaged account (ISAs, SIPPS, LISAs, Etc.)

What we need to know is what is your actual return on the property and then compare that to what you could have been getting in an ISA (taking into consideration all the costs and tax)

Since we started investing in index funds (as of June 2024), we have earned a 12.6% net return annually. That is the opportunity cost of having properties. Our cash could either be in index funds or property, not both at the same time.

The first step is ALWAYS to understand what you already have and then secondly to compare it to other options. So, let’s get down and dirty with the sums and work out if your property is an asset or not.

A lot of our Rebel Finance School attendees ask if it’s a good idea to invest in property. Or they want to be really clear on what return on investment or return on equity they’re getting. This can be tough to figure out, so we built this calculator to help you do it. You can use this calculator to analyse an investment you already own, OR you can use it to assess a potential investment.

Investment decisions should be based on maths and logic, not emotion. So, let’s get into the numbers.

A few things to know before you get going!

1. It is best viewed on a desktop. If you’re using a mobile device, we suggest turning your phone to landscape to see all the elements. We are working on a mobile-friendly version!
2. This calculator does not allow for tax since everyone’s personal circumstances are different. After you have your return, then consider your own tax situation to truly understand the returns after tax
3. If you are working on a mobile phone, you may have to double-tap the cells to write into them.

Enjoy using the calculator, and then keep reading for some final thoughts. We want your feedback, so see the form at the bottom for questions and comments!

The Excel spreadsheet below can be downloaded here

Investing in property can yield a good return. If you’re thinking of buying a property to rent out, make sure you do the numbers to work out the estimated return. I say “estimated” here because we can guess what the costs will be with the property, but we don’t know exactly what will happen or what unexpected costs will come up. You’re renting to people, and people do unpredictable things sometimes!

When most people work out the return, they assume they will be able to rent out the property 100% of the time. This may or may not happen. We have owned and rented out three different properties. One of them has always had a tenant in it. The second one has always had a tenant in it, BUT they stopped paying rent for a few months during the pandemic. And the third one was empty for 5 months whilst we struggled to find a tenant. This is why we’ve included the void assumption in our calculator: to allow for the fact that the property will probably be empty at some point while you own it.

Make no mistake, owning property is a business. Even if you hire a property manager or lettings agent, you are still ultimately responsible for the property and looking after your tenants, so there is still work involved. We used to own properties, but we sold them all. At this stage in our lives, we’d rather be passive in our investments and active in our lives. This is why we invest in low-cost index funds, so we can spend our lives having fun and prancing about on the beach rather than managing our investments.

The reason return on equity is important after you have had the property for a while is because that equity could be doing something else for you if you didn’t have the property. You might have only made a £25,000 investment in terms of the deposit, but after 5 years invested, you might have £125,000 equity in the property.

When you are considering your return it is critical to work out the return on equity. This is because that equity that has been building up could be working for you somewhere else if you sold the place and invested it in a different way. You might be getting a fabulous ROI but an appalling ROE, which is the position we are in at the moment.

​Our ROE was only 4% on our properties. We get a far better return in a low-cost index fund instead and have less work to do.

Please please please let us know what you think of the calculator. Are there bits that don’t make sense or you don’t understand? Are there ways you think we could improve it. Please tell us!