Introduction
Too many property investors are chasing the wrong numbers — and it’s costing them serious money. The most common trap? Focusing only on Year One Rental ROI (rental profit). While this figure can look attractive on paper, it doesn’t tell the full story of how your property will perform over the long term.
At Frater Property Partners, we believe successful property investing is about building sustainable equity and wealth — not just short-term yields. Here’s why.
What is Year One ROI?
Your Rental ROI (Return on Investment) or rental profit is the return on the cash you’ve invested in the property. For example:
- Property price: £200,000
- Deposit: £50,000
- Costs (stamp duty, legal, broker fees): £20,000
- Total invested: £70,000
If your annual rental profit is £7,000, your Year One Rental ROI is 10%.
This looks great — but it’s only one piece of the puzzle.
The Problem With Chasing High Yield
If you only focus on Year One Rental ROI, you risk buying cheap properties with high yields but little to no capital growth.
- These properties may give you 8–12% rental profit in year one.
- But if they don’t grow in value, inflation eats away at your returns.
- Over time, you could actually be losing money in real terms.
In contrast, a property with a lower initial Rental ROI (say 4–5%) in a strong growth area can deliver far greater long-term returns.
The Power of Long-Term Growth and Leverage
Wealth in property is built through:
✅ Capital appreciation – buying in locations with strong fundamentals that drive growth over time.
✅ Leverage – using finance to maximise the return on your capital.
✅ Equity recycling – refinancing as your properties increase in value.
Let’s compare two investors:
- Tony buys a property worth £100k outright in a cheap location. He earns 9% Rental ROI (£9,000) but sees no capital growth.
- Hannah uses leverage to buy a property worth £300,000 in an area primed for long-term growth. Year One Rental ROI looks smaller at 4%, but with 5% annual growth, her true ROI (rental profit + appreciation) is far higher — she sees £19,000 in her first year, more than double Tony.
Over five years, Hannah has the potential to pull out her full investment through refinancing, while Tony remains stuck with a stagnant asset.
How to Avoid the ROI Trap
- Think long term – focus on 5–10 year horizons, not just year one.
- Prioritise fundamentals – strong locations with infrastructure, jobs, and demand.
- Know your goals – every property should move you closer to your end objective.
- Balance ROI and growth – you need some cash flow, but capital growth is where the real wealth is built.
Conclusion
Rental profit and Year One Rental ROI matter — but they’re not the full picture. If you focus only on short-term numbers, you’ll miss out on the long-term equity growth that builds true wealth in property.
At Frater Property Partners, we help investors secure high-growth new build developments at discounted prices, giving you the best of both worlds: healthy rental returns and strong capital appreciation.
👉 Ready to build your portfolio the smart way? Get in touch with us today. https://fraterpropertypartners.com/contact/
Learn with us on YouTube: https://www.youtube.com/@JamesTalksProperty
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