We would like to talk about an interesting argument for who is looking at the real estate as an investment, expecting to earn in a short term, not only an increase of the value of the property; nowadays we can often find this kind of approach to the real estate market even to small investors.
We will talk about a residential property, a metropolitan apartment ready for occupancy, which is in our opinion a typical target for those who approach the real estate market with the purpose to gain rental yields starting quite immediately after the sale.
You could be surprised but the return on the investment is not too much related to how much you like the property or an attractive price.
Let’s try to be rational and effective. If the property is well located, enough to be able to generate interesting rentals, and the price suits our budget, we need to understand what are the basic information to acquire in order to be able to evaluate if the investment is interesting or not. We should do it before going on with every other further activity and details, once we are already convinced that it could be a good deal because we can earn.
As usual, the best thing to do is the simplest one: to calculate the ROI (Return on Investment).
We need a few reliable information in order to make sure the result will be trusted as well.
Annual rentals (our gross income); such as 12.000,00 USD or any different currency
Annual expenses (our costs: association fees, utilities, taxes on rentals and property, installments if any); such as 9.000,00
Total investment amount (how much to pay to buy the property, all included, the agent’s commission, furniture and any renovation to let the unit be ready to rent it out); such as 100.000,00
Let’s calculate our ROI.
Annual rentals – Annual expenses = Annual net income; such as 12.000,00 – 9.000,00 = 3.000,00
Annual net income : Total investment amount = ROI (X 100 in order to visualize a percentage); our example is 3%.
If 3% is ok for you, it’s time to go on and deepen. A professional property officer can assist you for sure.
A 3% ROI mean that you can expect to earn 3.000,00 net, in one year now, investing your 100.000,00 in a property.