What Is Property Cash Flow?
Cash flow is the lifeblood of property investment. It is the net money remaining each month after you have paid every single cost associated with owning and letting a property. Unlike rental yield — which compares income to property value — cash flow tells you exactly what lands in your bank account each month.
Positive cash flow properties are the holy grail for income investors: the property pays for itself and generates surplus funds each month. Negative cash flow properties — common in London and the South East — require the landlord to subsidise them from other income, with the investment thesis typically centred on capital appreciation rather than income.
Full Breakdown of Typical UK Landlord Monthly Costs
1. Mortgage Payment
The largest monthly cost for most leveraged landlords. On a £150,000 BTL mortgage at 5.5% interest only, the monthly payment is £687. On a repayment basis over 25 years, the same mortgage costs £919/month — a difference of £232/month that significantly affects cash flow. Most buy-to-let landlords use interest-only mortgages to maximise monthly cash flow.
2. Letting Agent Fees (8-12% of Rent)
Full management agents typically charge 8-12% of monthly rent plus VAT. On £950/month rent, that is £95-£114/month (£1,140-£1,368/year) plus VAT at 20%, meaning the real cost is £114-£137/month (£1,368-£1,642/year). Self-managing landlords avoid this cost but must handle tenant management, repairs, and legal compliance themselves. Many first-time landlords underestimate this cost by forgetting to include VAT.
3. Insurance
Specialist landlord insurance is essential and covers different risks to standard home insurance. Buildings insurance covers the structure (typically £150-£300/year). Landlord liability insurance protects against tenant injury claims (£50-£150/year). Rent guarantee insurance pays out during prolonged void periods or non-payment (£200-£400/year for a £1,000/month property). Total typical annual insurance cost: £350-£600 for an unfurnished two-bedroom property.
4. Maintenance and Repairs
The 1% rule is a widely-used industry heuristic: budget 1% of the property's value annually for maintenance. On a £180,000 property, that is £1,800/year (£150/month). This covers routine repairs (blocked drains, broken appliances, redecorating between tenancies), boiler servicing (£70-£120/year), and unexpected issues. New-build properties may require less maintenance initially. Older properties, HMOs, and student lets typically require significantly more.
5. Void Periods
Even in strong rental markets, properties rarely achieve 100% occupancy. Budget for 3-4 weeks of vacancy per year — this accounts for time between tenancies for cleaning, minor repairs, and finding new tenants. On £950/month rent, a 3-week void costs approximately £660/year (£55/month). In slower markets or for properties at the top of the local rent range, voids may run to 6-8 weeks annually.
6. Mandatory Safety Compliance Costs
- Gas Safety Certificate (CP12): Required annually, costs £70-£120
- Electrical Installation Condition Report (EICR): Every 5 years, costs £150-£300
- Energy Performance Certificate (EPC): Every 10 years, costs £60-£120
- HMO Licence: £500-£1,500 per 5 years (licensed HMOs only)
- Legionella Risk Assessment: On request, £100-£200
- Portable Appliance Testing (PAT): Recommended for furnished properties, £50-£100
7. Leasehold / Service Charges (Flats)
If you own a leasehold flat, ground rent and service charges can devastate cash flow. Service charges cover building maintenance, cleaning of communal areas, building insurance, concierge, and lift maintenance. In London, service charges of £3,000-£8,000+ per year are not uncommon in newer developments. Always request three years of service charge accounts before purchasing a leasehold property, and check the reserve fund balance. Unexpectedly high service charge demands are the most common cash-flow ambush in leasehold buy-to-let.
Interest-Only vs Repayment: Cash Flow Comparison
The choice of mortgage type has a dramatic effect on monthly cash flow. Here is a direct comparison on a £175,000 BTL mortgage at 5.5%:
| Metric | Interest Only | Repayment (25yr) | Difference |
|---|---|---|---|
| Monthly Payment | £802 | £1,072 | +£270/mo |
| Annual Payment | £9,625 | £12,864 | +£3,239/yr |
| Equity After 5 Years | £0 built | ~£13,000 built | +£13,000 equity |
| Capital at End of Term | £175,000 still owed | £0 owed | +£175,000 equity |
Interest-only gives £270/month more cash flow but you must have an exit plan (sale or remortgage) to repay the capital at term end. Repayment builds equity consistently but significantly compresses monthly cash flow, making many UK properties cash-flow negative at current rates.
Positive vs Negative Cash Flow: Regional Reality in 2025
At current mortgage rates (5.0-5.5% for BTL), achieving positive cash flow with a typical 75% LTV mortgage is challenging in most UK markets. Here is a realistic assessment by region for a typical two-bedroom property:
Positive Cash Flow Regions
- Liverpool — avg +£80-£180/mo (75% LTV)
- Hull — avg +£120-£220/mo
- Sunderland — avg +£100-£180/mo
- Bradford — avg +£80-£150/mo
- Stoke-on-Trent — avg +£90-£160/mo
Lower property prices relative to achievable rents make positive cashflow achievable even with a BTL mortgage.
Negative Cash Flow Regions
- Inner London — avg −£600 to −£1,200/mo
- Outer London — avg −£200 to −£600/mo
- South East — avg −£100 to −£400/mo
- Cambridge — avg −£150 to −£400/mo
- Oxford — avg −£200 to −£500/mo
High property prices relative to rents mean mortgage costs exceed income at standard LTVs. Investment thesis relies on capital appreciation.
Strategies to Improve Rental Property Cash Flow
- Increase deposit / reduce LTV: Moving from 75% to 60% LTV on a £200,000 property reduces the mortgage from £150,000 to £120,000, saving approximately £137/month at 5.5% interest only.
- Remortgage to a lower rate: Each 0.5% reduction in rate on a £150,000 mortgage saves £62.50/month. Always calculate arrangement fee payback period.
- Convert to HMO: Renting individual rooms rather than the whole property can increase total rental income by 30-50%, dramatically improving cash flow.
- Reduce management fees: Self-managing saves 8-12% of rent plus VAT. Use digital tools and tenant management software to reduce workload.
- Reduce void periods: Price rent at the right market level, redecorate promptly between tenancies, and list immediately upon notice being given.
- Incorporate into a limited company: Retains mortgage interest deductibility, potentially improving after-tax cash flow for higher rate taxpayers significantly.
- BRRRR strategy: Buy below market value, refurbish, refinance at higher value — extracting much of the original cash investment while maintaining positive cash flow.
- Furnished lets with inclusive utilities: Can command 10-20% higher rents in some markets, particularly near universities and corporate relocation areas.
Frequently Asked Questions
What is property cash flow?
Property cash flow is the net money remaining each month after paying all costs associated with a rental property. Positive cash flow means rent exceeds total expenses. Negative cash flow means costs exceed income and you are subsidising the property from other funds each month.
What is a typical monthly cash flow on a UK buy-to-let?
Monthly cash flow varies enormously. A cash-purchased northern England property with £850/month rent and £300/month costs might produce £550/month positive cash flow. A highly leveraged London flat may produce negative cash flow of £500-£800/month. At current mortgage rates of 5-5.5%, many BTL properties at 75% LTV are near break-even or slightly negative before tax.
How do I calculate break-even rent?
Break-even rent is the minimum monthly rent needed to cover all costs with zero profit. Add up: monthly mortgage + (annual agent fee / 12) + (annual insurance / 12) + (annual maintenance / 12) + (void allowance / 12) + (service charge / 12) + (other costs / 12). The total is your break-even monthly rent. If achievable market rent exceeds this figure, you have positive cash flow.
Is interest-only or repayment better for cash flow?
Interest-only mortgages produce significantly better monthly cash flow. On a £150,000 mortgage at 5.5%, interest only costs £687/month versus £919/month for repayment (25 years) — a difference of £232/month. Most BTL landlords use interest-only to maximise cash flow, relying on property appreciation to repay the capital at sale. Repayment builds equity steadily but compresses cash flow substantially.
What is the BRRRR strategy?
BRRRR stands for Buy, Refurbish, Rent, Refinance, Repeat. Investors buy a below-market-value property needing work, refurbish it to increase value and achievable rent, let it out, then refinance at the higher post-refurbishment valuation to extract most of the original cash invested. This recycled capital funds the next purchase. When executed well, BRRRR creates positive cash flow properties with minimal capital permanently tied up.
What landlord costs are most often underestimated?
Most commonly underestimated costs: (1) Maintenance — budget at least 1% of property value annually; (2) Void periods — expect 3-4 weeks per year; (3) Service charges on leasehold properties — can be £2,000-£8,000/year in London; (4) Section 24 tax impact — higher rate taxpayers often pay tax on fictional profits; (5) EPC improvement costs — from 2028 new tenancies may require EPC rating C or above.
How does remortgaging affect cash flow?
Remortgaging to a lower interest rate directly reduces monthly mortgage payment and improves cash flow. A 0.5% rate reduction on £150,000 saves approximately £62/month. However, consider arrangement fees (£500-£2,000), early repayment charges (1-5% of loan), and legal/valuation costs (£300-£600). Calculate the payback period: total refinancing costs divided by monthly saving equals months to break even. Remortgaging to release equity increases the loan balance and monthly payment, reducing cash flow.
Sources & References
- HMRC — Rental income and allowable expenses
- GOV.UK — Renting out a property
- UK Finance — Mortgage Lenders and Administrators Statistics 2025
- National Residential Landlords Association (NRLA) — Landlord Cost Survey 2025
- Bank of England Base Rate: 4.5% (February 2026)
Disclaimer: This calculator provides estimates for informational purposes only and does not constitute financial or tax advice. Consult a qualified financial adviser before making property investment decisions.