Excel Tool calculate Return on Investment (ROI) for Buy-To-Let Property Investment

1. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
by
Ashok Kumar
(Director at RASS Touch Ltd, UK)

2. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
About the presentation
This presentation is about using
quantitative method for making right
investment decision for Buy-To-Let
Properties.

3. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Target Audience
This presentation targets any person or
business who invests in Buy to Let
properties.
Viewers are requested to send feedback to the
email address mentioned at the end of this
presentation.

4. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Why more text on slides?
This presentation is designed to be viewed i.e. It’s not
designed to be presented by a person who verbally
explains the slide content.
Therefore, slides have more than normal text content.
Attempt has been made to explain briefly using simple
language and the diagrams.
However, the brief explanations through written text
may not be enough to understand certain concepts
and therefore, the effectiveness of this presentation
would be limited.

5. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Buy-to-Let Property ?
Buy-to-Let term is used when a property is bought solely for
letting on a rent i.e. property is not purchased for self use.
The property can be a home or a flat used for living and an
office used for commercial purposes.
Buy-to-Let properties can be bought in varied conditions and
may require renovation before it can be let on rent.
Financing can involve part initial payment and remaining
through Mortgage.

6. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
What drives Buy-to-Let decisions
Buy-to-Let term is used when a property is bought solely for letting on a
monthly rent.
Buying properties to let on rent is generally a commercial decision based on the likely
Return on Investment (ROI).
There may be few non-financial considerations such as
● Demand of rented accommodation
● Governments development plans
● Government regulations (it can be critical)
● Safety Risks (fire, flood, natural disasters)
● Security concerns (theft, riots)
● Religious groups living at the location
Next few slide show the factors that affect IRR and how IRR is calculated 

7. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Return on Investment (ROI) ?
ROI is used as a measure of profitability of an investment
i.e. more the ROI more should be the profit. ROI is
expressed in terms of percentage such as 12% meaning
every 100 invested is generating 12 as profit.
The simplest way to calculate ROI is by dividing the net
profit with the total cost of Investment. However, this
becomes misleading when the costs and the incomes are
spread over a long period. In such situations, the ROI is
correctly calculated by applying IRR (internal Rate of
Return) method on money-flow (Money-outs and Money-Ins)
transactions during the given period of the property
investment life span.

8. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Internal Rate of Return (IRR) ?
Time
Cost
Income
Income
Income
Income
Income
Income
Income
Income
Cost
Cost
Cost
Cost
Cost
Cost
Cost
Cost
Cost
FuturePresent
At IRR
Sum of Present value of Incomes = Sum of Present value of Costs
Where present value of an income or cost = Income or cost discounted at IRR
Example: Present value of 100 as income occurred 6 months in future monthly
discounted at 12% per annum or 1% per month = 100 * (1- 0.01)^6 = 94.15

9. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Factors that affect IRR
There are several factors that influence the decision to invest in Buy to Let a property.
Desired rate of return i.e. won’t invest unless the forecasted IRR is > a desired ROI.
Diagram on the next slide shows the formula to calculate IRR … 
Cost factors
• Buying price
• Renovations cost
• Initial payment (Self contribution)
• Mortgage amount, mortgage
period and interest rate
• Insurance and maintenance cost
• Letting agent’s fee
Income factors
• Average annual rise in property
price (property price may go down
in rare cases)
• Assured monthly rent
• Assured rent for x months / annum
• Yearly increase in monthly rent

10. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Sensitivity Analysis of ROI
Sensitivity analysis is all about how IRR is sensitive to the changes in
factors used to calculate the IRR. For example
• if property rent is increased by 10%, how much it will add to IRR
• If Mortgage is reduced by 5%, how much IRR will change
• How change in maintenance cost is reflected in change in IRR
• How changes in government regulations will affect IRR
• and so on
Sensitivity Analysis may warn the investor of the consequences of
changes before the changes occurs by showing the impact of changes
to ROI. It can help investor to take corrective steps in advance. Investor
can analyse the outcomes of various scenarios in advance and be
ready for property negotiation.

11. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Excel to
calculate
ROI
To get this MS Excel
tool write to this email: -
rasstouch@gmail.com
Buy to let Property investment ROI
A+I O+C+F
35196 35000
Desired ROI 9.9 % per year
Maximum ROI supported 20 % per year I= 17647 Present value of recurring income for investment period
A= 17549 Present value of the property value at the end of investment period
Property's current Price 35,000
Average rise in Property's Price 3 % per year O= 35000 Own funds (Initial)
C= 0 Present value of recurring financing cost, maintenance, letting cost for invest
F= 0 Mortgage fee
Initial own contribution fund 100 %of property price
Total Mortgage amount 0
Mortgage Period 10 years
Fix Mortgage fee 0
Fix Monthly Mortgage payout 0 per month
Property Insurance 0 per month
Property maintenance 0 per month
Monthly rent 230.33 per month
Monthly letting fee 0 per month
Rent increase rate 0 %
Increase Rent after 2 years period
Investment ensures ROI of 9.9%
About the property
About the mortgage
About other reccuring costs
About Property letting
About the investor
Calculate breakevenROI

12. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
Assumption for calculating ROI
The following assumptions apply to the Excel tool to calculate
ROI.
● ROI has a range of 0 to 20%
● Property price rise is assumed at a fixed rate per year
● Mortgage payout is assumed to be monthly
● Rent income is assumed to be monthly and fully used to
pay monthly Mortgage payouts
● Rent income is assumed for all 12 months. In reality it
can be less than 12.
● All recurring costs are monthly
The tool may not have covered all the factors that affect the ROI.
New version of the tool may support user suggests.
Frozen
lake

13. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
To create MS Excel and MS
Access based business apps,
Please contact the author of this
ppt at:
Email: rasstouch@gmail.com
Mobile: +44 7482 697 396

14. Buy-to-Let Property Investment
By Ashok KumarBy Ashok Kumar
© RASS Touch Limited
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