TL;DR / Key takeaways
- Analyse every deal against an independent RICS Red Book valuation built from six comparables — never against the asking price.
- The four-yield model reads a deal through four lenses: gross yield, net yield, ROCE and cash-on-cash. One number alone hides too much.
- Gross is a screening filter; net deducts running costs; ROCE tests how all your capital performs; cash-on-cash tests how your own cash performs after finance.
- Cost any refurbishment from real quotes plus a 10–15% contingency — never round-number guesses.
- Stress-test against higher rates, longer voids, lower rent and flat resale. A sound deal still stands up; a fragile one only works on best-case inputs.
You analyse a property deal by valuing it independently first, then running four complementary yield measures — gross, net, return on capital employed and cash-on-cash — on conservative, evidence-based numbers, costing any works from real quotes, stress-testing the result, and clearing a due diligence checklist before you commit. No single figure decides a deal; the four yields together do. This is general information, not financial, legal or tax advice — seek independent professional advice before acting. Nothing here is a forecast, promise or guarantee of any return.
Start with value, not the asking price
Before any yield calculation, you need an honest figure for what the property is worth in its current condition. Asking prices reflect a seller's hope; they are not evidence. The professional standard is a RICS Red Book valuation — a figure prepared by a qualified surveyor to the RICS Valuation – Global Standards — and you can sanity-check it yourself with comparables.
A comparable is a recent sold price for a similar property — same area, size, type, condition and tenure — used as evidence of value. Pulling at least six comparables from HM Land Registry Price Paid data and portal sold-price records, then adjusting each for differences, gives you a defensible value range to underwrite against.
Every yield in the four-yield model depends on getting two numbers right at the outset: the total purchase cost (price plus stamp duty, legal fees and acquisition costs) and the achievable rent (evidenced by letting comparables, not the agent's optimistic estimate). Get those wrong and every downstream figure is wrong.
The four-yield model
Most beginners quote one number — usually gross yield — and call it analysis. Serious analysis reads a deal through four lenses, because each answers a different question and each can flatter or expose the deal in a way the others can't.
Yield 1 — Gross yield (the screening filter)
Gross yield is annual rent divided by total purchase cost, expressed as a percentage. It ignores every running cost, so it is only useful as a first-pass screen — a way to reject obviously weak deals before you spend time on them. A property at £400,000 all-in renting at £24,000 a year shows a 6% gross yield. Treat it as a doormat, not a verdict: it tells you whether a deal is worth analysing properly, nothing more.
Yield 2 — Net yield (the honest income picture)
Net yield subtracts the running costs gross yield ignores: letting and management fees, buildings insurance, maintenance and repairs, service charge and ground rent (for leasehold), a void allowance, and any non-recoverable items. The gap between gross and net is often two to three percentage points — which is exactly why gross alone is misleading. Net yield is the first figure that reflects what the property actually returns before finance.
Yield 3 — Return on capital employed (ROCE)
ROCE measures the annual net profit (rent less all costs, including finance) against all the capital deployed in the deal — deposit, fees, stamp duty and refurbishment. It answers "how hard is the total money in this deal working?" and is especially useful when you've added value through works, because it captures the capital you've recycled in. ROCE is a measure of efficiency, not a promise of any outcome.
Yield 4 — Cash-on-cash (your own money, after leverage)
Cash-on-cash divides the annual cash flow after mortgage interest by the actual cash you put in. It is the only one of the four that fully reflects leverage, and it can look very different from net yield once a mortgage is in place. A leveraged deal can show a strong cash-on-cash figure and a modest net yield, or vice versa. It is one input among several — never a forecast or a guaranteed return.
| Measure | What it asks | Example input | Result |
|---|---|---|---|
| Gross yield | Worth analysing? | £24,000 rent ÷ £400,000 cost | 6.0% |
| Net yield | Real income before finance? | £18,000 net ÷ £400,000 cost | 4.5% |
| ROCE | How efficient is all capital? | £6,500 net profit ÷ £130,000 capital | 5.0% |
| Cash-on-cash | How hard is my cash working? | £6,500 cash flow ÷ £130,000 cash in | 5.0% |
Read together, the four yields tell a coherent story. A deal that looks fine on gross but collapses on net has a cost problem; one that's fine on net but weak on cash-on-cash has a finance problem. The discipline is refusing to let any single figure carry the decision.
Costing the refurbishment properly
Refurbishment is where optimistic analysis goes to die. The fix is to cost works from real quotes or a quantity-surveyor-style schedule, not round numbers pulled from the air.
Break the works into categories
- Structural — roof, walls, damp, subsidence, any movement flagged by survey.
- Services — full or partial rewire, plumbing, heating and boiler, an up-to-date EICR position.
- Kitchen & bathrooms — usually the biggest discretionary spend and the biggest value lever.
- Decoration & finishes — flooring, plastering, joinery, painting.
- External — windows, gutters, gardens, parking, fencing.
Then add a contingency of around 10–15%. London period stock routinely hides problems behind plaster, and a contingency is the difference between a deal that survives a surprise and one that doesn't. Crucially, price the finished standard against the rent or resale value it actually supports — gold-plating a refurb the local market won't pay for destroys returns just as surely as under-budgeting.
Comparables — for value and for rent
Comparables do double duty. You use sold-price comparables to set the value the deal is analysed against, and letting comparables to set the rent your yields depend on.
- Use sold prices and let prices, not asking figures. Land Registry Price Paid data and portal sold-price and let-agreed records are evidence; listings are aspiration.
- Match like-for-like on area, size, type, condition and tenure, and keep comparables recent (ideally within six months) and local.
- Adjust for differences — an extra bedroom, a refurbishment, a garden, a longer lease — and document each adjustment.
- Cross-check the rent the same way. An over-stated rent inflates all four yields at once; it is the most common single error in amateur analysis.
Stress-testing the deal
A deal that only works on best-case inputs is a hope, not an investment. Stress-testing re-runs the numbers under deliberately adverse assumptions to see what survives.
| Stress test | Adverse assumption | What it exposes |
|---|---|---|
| Interest-rate rise | Mortgage rate +1.5–2.0% | Whether cash flow survives a refinance at higher rates |
| Extended void | 2–3 months vacant per year | Whether reserves cover lost rent |
| Lower achieved rent | Rent 10% below estimate | Whether the deal still washes its face |
| Refurb overrun | Works 20% over budget | Whether the discount to valuation survives |
| Flat or falling resale | No capital growth, or −5% | Whether the deal works on income alone |
The goal isn't to find a deal that's immune to everything — that doesn't exist. It's to understand exactly where the deal breaks, decide whether that risk is acceptable, and price it in. Stress-testing turns "I think this works" into "I know what it takes to make this fail."
The due diligence checklist
Analysis tells you whether the numbers work; due diligence tells you whether the numbers are real. Work through every item and evidence it — assumptions are where deals go wrong.
- Tenure & lease length — freehold or leasehold; if leasehold, years remaining and the cost of any extension under the Leasehold and Freehold Reform Act 2024 framework as it takes effect.
- Title — register entries, restrictions, charges, rights of way and covenants from HM Land Registry.
- Planning & building regs — history of permissions and completion certificates for past works.
- Independent valuation & comparables — a RICS Red Book figure supported by at least six comparables.
- Survey — a level appropriate to the property's age and condition (a full building survey for older or altered stock).
- EPC & compliance — current EPC, gas safety and electrical (EICR) position, plus any future minimum-standard changes.
- Tenancy & deposit paperwork — if let: signed AST, protected deposit, and prescribed information served.
- Service charge & ground rent — for leasehold, the actual figures and any planned major works.
- The full cost stack — purchase price, Stamp Duty Land Tax (including any additional-property surcharge), legal and survey fees, finance costs and refurbishment.
- Exit — how and to whom you would sell or refinance, and what the analysis looks like under the stress tests above.
Who's behind L&M
Built by two disciplines most sourcing firms never combine
L&M was built by two disciplines most sourcing firms never combine — a property operator who has built and run a real-estate portfolio (sourcing, refurbishing, financing and exiting), and a wealth manager who has advised serious capital (underwriting risk, structuring, protecting downside).
Every deal is researched, modelled and stress-tested before an investor ever sees it — underwritten like an investment and structured like a portfolio. In practice that means each opportunity is valued against a six-comparable RICS Red Book valuation, run through the full four-yield model on conservative inputs, costed from real refurbishment quotes, and stress-tested against higher rates and longer voids — with the working documented so you can check it yourself.
We are building compliance-first: an anti-money-laundering framework is in place and supervision is pending. The register is invitation-only and operates on a waitlist basis while we open in a controlled way.
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Join the founding investor register → AML supervision pending. Waitlist only. This is general information, not financial, legal or tax advice — seek independent professional advice. Nothing here is a forecast or guarantee of any return.Frequently asked questions about analysing a property deal
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