What is monthly profit?
Monthly profit is calculated by subtracting monthly costs from monthly rental income.
In simple terms:
Monthly profit = monthly rent - monthly expenses
Expenses typically include:
- Mortgage payments
- Letting or management fees
- Maintenance
- Insurance
- Service charges or ground rent
- Other recurring costs
The result represents the property's cash position for an average month.
What monthly profit tells you
Monthly profit helps answer questions such as:
- Does rental income cover ongoing costs?
- Is the property generating surplus cash each month?
- How sensitive is cash flow to changes in rent or costs?
Because it focuses on the short term, monthly profit is often used to assess affordability and cash flow stability.
What monthly profit does not tell you
Monthly profit does not:
- Account for upfront costs such as deposits or legal fees
- Measure how efficiently cash is invested
- Reflect long-term changes in property value
- Capture irregular or unexpected costs
For this reason, monthly profit should not be used in isolation when comparing properties.
Positive monthly profit
A positive monthly profit indicates that rental income exceeds ongoing costs.
This may:
- Provide surplus cash each month
- Help absorb unexpected expenses
- Reduce reliance on external funding
However, a positive monthly profit does not automatically imply a strong overall return, especially if a large amount of cash is invested upfront.
Negative monthly profit
A negative monthly profit indicates that monthly costs exceed rental income. This situation is sometimes referred to as a "monthly shortfall".
A negative figure may still occur in scenarios where:
- A large deposit is used
- Capital repayment mortgages are selected
- Long-term objectives differ from short-term cash flow
Whether a negative monthly profit is acceptable depends on broader assumptions and objectives, not on the monthly figure alone.
The role of mortgage structure
Mortgage type and interest rate have a significant impact on monthly profit.
- Interest-only mortgages typically result in lower monthly payments
- Repayment mortgages include capital repayment, increasing monthly costs
As a result, the same property can show very different monthly profit figures depending on mortgage structure.
Fixed vs variable assumptions
Monthly profit is sensitive to assumptions such as:
- Maintenance costs
- Management fees
- Insurance
- Interest rates
Small changes to these assumptions can materially affect monthly results, especially when margins are tight.
This is why it is useful to test different scenarios using consistent assumptions.
Monthly profit vs annual profit
Annual profit is calculated by multiplying monthly profit by twelve.
While this provides a longer-term view, it still does not include upfront costs. Annual profit is often used as an input to return calculations such as ROI.
Monthly and annual figures should be interpreted together:
- Monthly profit shows cash flow behaviour
- Annual profit supports comparison and return metrics
Cash flow vs return
It is possible for a property to:
- Have strong monthly cash flow but low ROI
- Have weak or negative monthly cash flow but higher ROI
This usually depends on:
- Amount of cash invested
- Financing structure
- Ongoing cost assumptions
Understanding this distinction helps avoid misleading conclusions based on a single metric.
How the calculator uses monthly profit
The calculator displays monthly profit based on:
- User-entered rent
- Selected mortgage type and rate
- Entered or assumed costs
By adjusting inputs, you can see how changes affect monthly cash flow and how sensitive results are to assumptions.
Summary
Monthly profit provides a clear view of short-term cash flow, but it does not capture the full picture of a buy-to-let investment. Understanding what it represents — and what it does not — helps interpret calculator results more accurately and compare scenarios on a like-for-like basis.