Buying or renting an apartment and getting a return on it is still one of the preferred options for both small and large investors. In fact, Spain is one of the best countries in the world to invest in housing and the preferred by most, along with the United Kingdom and Germany.
But, what price should we establish so that renting a property is as profitable as possible, and how can we calculate the profitability of a rental? We tell you from Fotocasa.
What is rental profitability and how can we calculate it renting an apartment?
The rental profitability is the economic return obtained by the owner who rents a property to someone who pays a monthly rent to live in it.
However, to calculate how profitable it is to have an apartment for rent we have to take into account several factors, such as the expenses involved in its acquisition:
- The amount paid to buy it (and reform it, if necessary).
- The payment of the taxes derived from the purchase (ITP, IAJD…)
- The payment of the fixed expenses (IBI, community, insurance, garbage tax…)
- The payment of the maintenance expenses (repairs, spillages…).
Once we are clear about the expenses involved in a given property, we will have to establish a price for renting it and, in this way, we can calculate how profitable it will be.
There is a formula to do this:
Annual rental income – fixed and maintenance expenses / purchase amount + payment of taxes derived from it x 100.
For example, let’s assume that we have bought a house for 350,000 euros (taxes included), whose fixed and maintenance expenses add up to 2,000 euros per year, and for whose rent we charge 1,500 euros per month (i.e. 18,000 euros per year).
We must carry out the following operation:
(18,000 – 2,000) / 350,000 x 100 = 4.57% net annual return.
In the case of having to take out a mortgage loan to buy the house, we must subtract the amount mortgaged from this investment and add the monthly payment to the fixed costs.
What price should we set to make renting a property as profitable as possible?
As we have been able to verify, renting an apartment or house is profitable. However, it is important to establish an adequate rental price to obtain a good profitability. As it is logical, the higher the rent that we are paid, the more profitable the investment will be. However, there are a number of issues to consider.
Firstly, if we set the rental price too high, it is very likely that we will not find tenants and that, therefore, the property will not be profitable. In fact, we will be losing money, since we will also have to pay fixed expenses, and maybe even a mortgage.
Therefore, it is essential to establish a fair price, which allows us to charge a good rent, but at the same time, it is not exorbitant, so that we can find tenants as soon as possible. But how can we know what price is the right one?
There are some approximate scales that allow us to know what is the price for which we can rent a house. In any case, it is very important that it is adjusted to the current demand.
First of all, we can consult the approximate rental price of housing in the area where it is located, based on the Fotocasa Real Estate Price Index. According to this, the price of rental housing in October was 10.49 €/m2 per month.
We can also access the Fotocasa online simulator, which will allow us to calculate the amount for which we can rent our home; we will only have to enter its exact address or its cadastral reference.
It is also advisable to compare the property we want to rent with other similar properties, located in the same neighborhood, to find out how much other owners are asking for them.
However, according to experts, a good investment is considered to be one that produces a net return of between 4% and 7%. Therefore, if the rent we are asking for a property does not reach 4%, we should increase it. A good investment is considered to be one that produces a net return of between 4% and 7%.
We have already seen that renting a property, especially now that the imbalance between supply and demand in the rental market is so accentuated, is very profitable, if we establish a price according to the market.
If you want more information, contact our real estate agency to rent and buy apartments and houses. We accompany and advise you throughout the process.
