Calculating Profit/Loss on Rental Property

Annie1960

londonman81 wrote: »

To be honest I'm struggling to understand how the capital piece of the mortgage (£350) is being paid off by the rental income. The rental income is being offset against the deductible costs only i.e. the running costs and the mortgage interest component.

From a lay perspective, there is still £350 of the mortgage left to pay as well.

I can't follow your thought process here.

The mortgage capital is on the Balance Sheet. This is nothing to do with tax.

The mortgage interest is on the P&L. This needs to feed into your tax calculation.

If you get £1,500 in rent and use this to pay what is presumably a repayment mortgage (£400+£350) £750. The payment you make of £750 each month includes both elements of the mortgage, but obviously the £400 goes on the P&L and the £350 is increasing your asset on the Balance Sheet.

The good news is that it doesn't really matter. Most people just look at a rule of thumb, such as making sure the rental income is at least 1.25 times the mortgage payment. Take into account the expectation that interest rates may rise in the near future, so mortgages will increase in cost.

If you rented out the entire property, where would you live?