Buy to rent, how do you know if it's rentable?

Buying a property to rent is a very common investment, especially at this time. But it is important to take into account all the factors linked to this type of investment, especially if it is the first time. We must take into account at the time we buy how the market situation is, the location of the property and the type of property.

How can you tell if our purchase is repayable?

With this blog we help you calculate the profitability of the property you are thinking of buying.

There are certain aspects that can influence the moment of knowing whether an investment is good or not, here are certain factors to take into account and why:

• The location: one of the most important factors is knowing the area where you want to buy, you must know if the area has a high rental demand or if, on the contrary, it has a low demand, since this aspect can be the key point for the investment. It’s also relevant to take into account the connectivity of the area, if it is easy to access, if it is close to the main services, this will expand the potential rental clients.
• The state of the property: if the property is in good condition, the same investment calculation cannot be made as we would if the property needs renovations. If the property needs renovations, we must include this factor in our calculations, as this could make the difference between a good investment and a bad one.

Type of housing: the market must be analyzed to find out what type of property is most sought after by tenants, but generally the smallest properties are the ones that give the highest profitability. In this case, it may be interesting to talk to a real estate professional to get an idea of ​​the needs of the market.

What factors should we take into account?

How to calculate profitability?

The basic and quick calculation that we can perform to know if it is a good investment is a calculation of gross profitability. In this calculation, we must take into account the possible annual profitability of the rental and the purchase price.

Here is an example:

If we buy a flat with a purchase price of €350,000 and the rent at €1,500, it is necessary to divide the annual income (1,500x 12 months=€18,000 per year) by the purchase price (€350,000) and multiply by 100 to get the percentage floor of the gross profitability.

18,000/350,000x100=5%

The profitability of 5% is within the profitability that we can have in the Andorran market, because we can see that the purchase of this property is a good investment.

We can also use this method to set a rental price if we are not sure.

But it is important to remember that gross profitability is different from net profitability. This calculation given is for gross profitability. If we want to calculate net profitability, there are other factors to consider such as:

• Sales taxes
• Possible reforms or repairs
• Community expenses
• Mortgage expenses
• insurance

The calculation of gross profitability is an approximate calculation to know if the investment we want to make is good or not.

The calculation of net profitability gives us a more precise idea about the real % of our investment once we have bought.

These indications are always approximate and it is an extra help to be able to assess possible investments, it is important to have a good real estate professional to be able to advise them and also to be able to find the ideal investment.

You can see our properties to get an idea of ​​the possible investments we have. For any question or query you can contact us at +376342332 or by email: info@thesweethomecompany.com