Renting out a property must be profitable in order for it to become a successful rental investment. Before you begin rental management, this is an important indicator. It also allows you to determine if the project is really worth it for you and to help prepare your real estate credit file.
How is a rental property’s profitability calculated?
When we talk about renting investment, the main indicator is rental profitability. This allows the lessor or investor to assess the viability and investment potential of real estate projects. It is the reason why Calculating the profitability of a property It allows you to calculate the potential income from it. This is calculated by comparing the rent to its purchase price. If the ratio is high it is a sign that the property has potential to be profitable. This calculation must be performed with care. The interest in a specific investment . The calculation of rental profitability may take into consideration several factors. There are three methods to calculate rental profitability. You should never buy property without first ensuring that it is in your best interest. While this is all the information that you will need to determine your rental return, it’s not the only thing to be aware of. Here are some examples:
- rent;
- The taxation
- expenses;
- The purchase price.
Gross profitability , It is also useful for research. This allows you to compare property prices and determine which one is the best. The annual rent and property price are not taken into account. The rent, minus any charges, is the price of the property x twelve months. Here’s how you can buy a studio that is being rented out for EUR500/month for EUR100,000. Calculate the gross profit (500 x 12,) / 100000 = 6.
Get a simulation of your rental management fees
Simulate the rental return
Gross return allows you to easily compare properties and their respective interest. But, you must consider other factors when calculating the actual return of your investment. Other important factors are necessary to be able to access more accurate indicators in your real estate investment project. We cite the following:
- Property tax
- non-recoverable co-ownership charges
- The owner’s insurance
- Management fees
The example above shows that the Gross yield is a percentage A minimum of 6% This number will rapidly rise if you take out the expenses. The progressive tax rate for landed income is 17.2%. Calculating the net profit will help you write an estate plan as well as a financial strategy. You can’t calculate the expenses if you don’t know how much. Estimate the rental return Reduce 3 months rent This estimate is the average annual expense. This is only true if your property management company manages it. Example: 500 EUR x 9 Months / 100000 EUR, 4,5 %.
How can you optimize simulations of rental yield in real property?
Investors need to be able to simulate expenses. For him it’s the way of indirectly estimating the costs. There are many options available to increase the rental yield. You can also simulate tax credits or devices. Tax incentives are a way to maximize your tax system while obtaining greater returns. You can also use the Pinel tool, which allows you to get tax savings up to 63,000 EUR per year without conditions. You will be required to rent the property to you in return. Period of 6-9 or 12 years. The property must be acquired in the desired area. This makes simulations even more crucial as prices can vary between areas. However, it is important to observe the limits of resource. The simulation, in short, is an invaluable tool which will assist you tremendously with your rental investment. We strongly recommend that you use the simulation before investing in any project.
If you decide to finally invest in a property, take a look at rental management platform, they are very handy !