Key Takeaways
  • Investors using buy-to-let mortgages achieve a better ROI on their investment compared to cash buyers. This is due to the leverage effect, where a smaller deposit (e.g., 25%) can lead to larger returns, especially when the property appreciates in value.
  • An example property in Birkenhead valued at £95,000 demonstrates that the ROI for a mortgage purchase (26.74%) is significantly higher than a cash purchase (10.69%), even with the added costs associated with a mortgage.

When considering how to fund your next investment property purchase, an important aspect to consider is the return on your investment (ROI) – whether you choose to purchase with cash or mortgage will have a larger effect on your returns than you might think so it’s imperative that you understand which of these two methods delivers better results. 


Note – the purchase method is one of the most important factors affecting your potential returns, along with the quality of the property and whether or not the location is in demand (be sure to also check out our property research guides to learn how to tick off the last two factors in ensuring a great ROI).


In this guide, we’ll begin with answering the question ‘do cash buyers or mortgage buyers get better ROIs’ before moving on to an example investment property and working out the numbers for both purchase methods. 

Do Cash Buyers or Mortgage Buyers Get Better ROIs?

Investors purchasing with a buy-to-let mortgage hands down get a better ROI on their investment, both in the short-term and the long term. This is because purchasing with a mortgage is essentially leveraging your property investment four times (if you deposit 25%) so if your property appreciates in value, that gain represents a far larger return on your invested money as opposed to if you had purchased with cash.


Buying with a mortgage also wins out in terms of cash flow from the property. Even though mortgages are a large monthly expense, sometimes almost making up half of your rental income, the return as a percentage is still better than if you were to purchase with cash.


Let’s look at an example to demonstrate this.

The Key to Successful Investments

Hands down the single most important step that you can take in your property investing journey is learning how to properly analyse deals. A bad property investment leaves you vulnerable to de-appreciation, loss of your hard-earned funds, and worst of all, hair lose caused by all the stress. If you'd prefer to avoid stocking up on Regaine, consider checking out our range of property analysis tools.

Example Investment Property – Cash vs Mortgage

Repeat readers of Amateur Landlord will know that I’m a fan of Merseyside so for our example, we’re heading over to Birkenhead (It’s located in the borough of Wirral, just opposite Liverpool). We’re going to be looking at a nice 2-bed semi-detached property in CH41 7BW which is valued at £95,000 (We used Lendlord’s free analytics tools to work out the market value). Two-bed properties in a similar condition in this postcode rent out for around £600. 

Example invsetment property

Knowing this, lets first break down the amount of money necessary to purchase this property as a rental and then work out our potential returns on the investment.

Purchase Costs – Cash or Mortgage

The below table breaks down the purchase and set-up costs for this rental property, both if we were to use cash and if we were to use a mortgage.

Cash PurchaseMortgage Purchase
Cash / Mortgage Deposit Necessary£95,000£23,750
Stamp Duty£2,850£2,850
Solicitor / Legal Fees£1,100£1,100
Mortgage Broker£0£500
RICS Survey£350£350
Gas and Electricity Checks£350£360
Letting Agents£450£450
Total Cost£100,100£29,360

Cash Flow For Each Method

Now that we know how much money would be required to purchase this property via cash and mortgage, all that is left for us to do is work out the monthly profit for each method. To keep things simple, we’re going to assume that we’re self-managing the property to remove the optional management costs.

Cash PurchaseMortgage Purchase
Rental Income£600£600
Mortgage Payments (Interest Only at 4%)£0– £237.50
Landlord Insurance– £25– £25
Monthly Profit£575£337.50
Annual Profit£6,900£4,050

ROI For Each Method

Now that we’ve worked out how much money would be necessary to purchase and set up the rental property, as well as how much profit we could make, it’s time to use these figures to calculate the return on our investment. It’s important to also consider the capital appreciation when calculating potential returns – for this, we’ll assume that the property increases in value by 4% (According to Lendlord, the average annual growth over the past 5 years has been 6.9% but we’ll use 4% to keep it conservative).

Cash PurchaseMortgage Purchase
Invested Capital£100,100£29,360
Annual Profit£6,900£4,050
Increase In Value (4% Growth)£3,800£3,800
Return on Investment10.69%26.74%

As you can clearly see, buying a rental property with a buy-to-let mortgage is vastly superior to purchasing with cash from an ROI perspective. Since using a mortgage requires us to invest about a third of what cash buyers would invest, the potential increase in value coupled with the rental income (which is slightly worse than if purchased with cash) results in a fantastic ROI overall. 

Final Thoughts

Utilising buy-to-let mortgages helps you leverage your money in order to get vastly greater returns on your investment compared to if you used cash to fund the purchase outright. If you’re a property investor interested in growing your property portfolio quickly or just trying to maximise your returns, purchasing with a mortgage would be the best option. To maximise your returns even more, it’s important that you find a great lender offering market-leading rates and conditions that suit your goals – we’d recommend using a online buy to let brokerage to easily compare and apply for mortgages with some of the best lenders on the market.

Victor Sterling

Victor Sterling

Hi, my name’s Victor - I’ve been investing in property for three years now, with my preferred strategies being buy-to-let, BRR and house flips. My goal with Amateur Landlord is simple - to provide beginners with easy-to-follow resources that simply weren’t around when I started, and to offer these for free and without ads.

Related Guides



The data and all content on this website is for informational purposes only and should not be relied upon. It does not constitute investment advice, or advice on tax or legal matters.  You alone have the responsibility of carrying out due diligence to evaluate the benefits and risks associated with any content on this website and seek the appropriate professional advice. You agree not to hold this website, its owner, author or any sponsor accountable for any possible losses as a consequence of any decision you made, based on the information you found on this website. No income claims are being made for any opportunity or method described — outcomes often depend on personal skills and work ethic alongside market conditions that are outside of any individual control. This website is not endorsed nor sponsored by any company or band mentioned therein.