Working out your rental returns in Spain!!!???
Tuesday, August 26, 2008 @ 12:04 AM
When buying a property in Spain (or anywhere in the world for that matter), we are often quoted rental return rates that don't really add up. For example, some sellers, agents or developers may say "Buy this property and you'll easily be able to make 5% return by renting it out".
BEWARE AND DO YOUR OWN HOMEWORK FIRST.
When calculating your returns it is important to take the following steps before getitng excited with the possibility of your rental returns and parting with your hard-earned cash:
1) Calculate how much the property will cost you in TOTAL (including all purchase, mortgage, legal costs, running costs, and furniture)
2) Get an idea what a similar property to yours may rent out for (either short-term or long term)
3) Ask local rental agents in your area how much they may charge in terms of commission and services
4) Make sure there is a strong demand for rentals in your area
5) Work out what tax you may have to pay on your rental income
For example, if you plan to buy an apartment for 200000 Euros, and you're told you can get 5% return (on the purchase price), you would assume you could walk away 10000 Euros. In reality, a property priced at 200000 Euros, will probably cost you in total about 236000 Euros (including 13% purchase costs and allowing for 10000 Euros to fully furnish the property for example). In reality, your max. return would be 10000 / 236000 Euros = 4.24%. However, moving one step further, you'll probably have to pay your rental agent 10% + (or maybe one months rent), leaving you with 9000 Euros. 9000 Euros / 236000 Euros = 3.8% return. If you then allow for taxes at 20%, your net figure in your hand would be 7200 Euros over a total cost of 236000 Euros = 3% Return! I think you get the idea.
Therefore, for those of you looking to buy a property, to rent out, the secret is find the property, which will give you a comapratively high rent, giving you a higher rental yield or return per year against your total costs. With the market in a bit of turmoil, there are a few bargain properties out there which will give you a good return, so look carefully. If you do find a bargain, you may even be able to make a little on the capital appreciation.
Adios for the moment.
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