Some people consider buying an apartment to rent as an investment. This can be a great choice if you know how to do it and if you calculate the profitability of the operation beforehand.
Is buying an apartment to rent profitable?
Buying a house to rent has important advantages and disadvantages that are important to know before making the decision to invest. Some of the benefits are the possibility of obtaining a fixed monthly income and a higher return than other investments available in the market. On the other hand, the term to recover the investment is medium and it takes time torecover the capital through sale, if necessary.
In view of all this, it is profitable to buy an apartment to rent because of the benefits it brings. Moreover, in recent months the gross yield on this type of operation has risen, surpassing that offered by 10-year government bonds.
This will be the case as long as the investment is made intelligently. In addition, it is necessary to have patience, as well as to be aware of the fixed costs incurred with the purchase of a home. Some tips to keep in mind to make buying an apartment to rent profitable are:
- Choose an apartment that is in good condition. A small renovation and attractive decoration will be enough.
- Look for a location that is well valued, with services and leisure nearby and good communications. By choosing well where to buy an apartment to rent, the property will generate more interest.
- Study different leasing options, such as room rentals. Although it takes more time to do so, it can be much more cost-effective.
- Common areas, such as swimming pools and gardens, increase the price of rent and future sales, so homes with these spaces will be more profitable.
In addition to following these tips when choosing a property to rent, it is important to calculate the profitability of buying a property before carrying out the operation.
How to calculate the profitability of buying a rental property
Profitability is the relationship between the benefits of an operation and the investment made in it. In the case of the profitability of buying a house to rent, this refers to the economic performance of a property owned and rented to a third party, who pays a monthly rent.
Before making the investment in the purchase of the house, it is advisable to estimate the profitability to be obtained. The two main factors taken into account to calculate the profitability of this type of operation are the purchase price of the apartment to be acquired and the price to be charged for the rent. Dividing the rental income by the price of the property and multiplying by one hundred will give the gross profitability percentage.
However, the gross profitability is not the real one, since the operation involves other expenses that must be subtracted from it. The main ones are investment costs, fixed costs and maintenance costs.
- Investment expenses are those associated with the purchase of the property, such as notary fees, registration fees or renovations, which will add up to the total investment cost.
- Fixed expenses are those that must be paid even if the monthly payment is not collected, such as the community fee or IBI.
- The maintenance expenses are those related to repairs, maintenance and repair of the property.
Once we know the different expenses, the formula for calculating the net profitability of a rental property is:
(Annual income-fixed and maintenance expenses) / Total investment x 100
Let’s take an example. If a house is acquired for 100,000 euros where 20,000 euros are invested, and an annual rent of 12,000 euros is obtained with fixed expenses of 1,000 euros and maintenance expenses of 1,200 euros, the profitability would be:
(12.000 – 2.200)/120.000 x 100 = 8,17 %
If you still have doubts about whether investing in a rental property is profitable, you don’t know how to do it or you want the operation to be safe and profitable, contact us. We accompany you through all stages of your investment, ensuring that it is profitable and secure.
Buying an apartment to rent is profitable, and it is a very interesting operation if you follow some tips, such as choosing a good location and that the property has common areas. To calculate whether the operation is profitable, it is necessary to take into account the acquisition price, the market evolution, the costs involved in the purchase, the annual income and the fixed and maintenance costs.