Is it profitable to buy a flat to rent?

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es rentable comprar un piso para alquilar

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You have decided to buy a flat to rent because you want to get a return, but have you thought about the costs you will have to bear or what will happen if the tenant does not pay you? Buying a home as an investment requires you to consider many variables. In this post we tell you whether or not it is profitable to buy a flat to rent and what you should consider to get the maximum return.

Aspects to consider to find out if it is profitable to buy a flat to let

Housing is a safe haven for buyers and investors, but we cannot forget that buying a home for your own use is not the same as buying a home as an investment to rent it out. The aspects to consider in this second case are the following:

– Find out what expenses the flat entails. The flat, both before and after the purchase, means that the buyer will have to assume a series of expenses that must be calculated accurately. Some of the costs are as follows:

Purchase price.
Purchase and sale expenses (notary, registration, agency).
Commissions paid to the estate agent who has participated in the transaction.
Maintenance expenses of the flat (repairs of electrical appliances or elements of the property: doors, advantages, taps, etc.).
Ordinary and extraordinary community expenses.
Works carried out in the flat to rent it out.
Purchase taxes paid by the buyer (VAT, ITP, AJD) and other taxes to be paid subsequently, such as IBI.
Insurance that must be taken out for the property: civil liability insurance, non-payment insurance, for example, in the case of renting.

– Look for a suitable neighbourhood. The area in which you buy your flat will also influence the profitability. It should be an area well served by public transport, with services such as schools, pharmacies, sports centres, supermarkets and parks, among others. It is important that you also look at the rental and sale prices in each neighbourhood to get an idea of the profitability you can get. In our post The best neighbourhoods to live in Barcelona you will discover the characteristics of different areas depending on the circumstances of the occupants of the property (families, couples, students, professionals, etc.).

– Assess the type of rent. The type of rental of the property may be different. For example, you may want to rent to tourists, families or other people as a permanent residence, or you may prefer to rent by rooms.

– Analyse the solvency of the tenants to avoid non-payments. Another aspect to consider, and which will influence the profitability, is the solvency of the tenants. Before signing the rental contract, you should check whether they can pay the rent. To do this you can ask them for: employment contract, last pay slips, income tax returns, VAT or Corporation Tax returns, in the case of business owners. You can also consult debtors’ files.

Profitability of buying a property to rent

It is clear that having money in the bank is not currently profitable, but quite the opposite, because almost all banks charge commissions for the operations they carry out. Therefore, buying a property to rent it out is a good option.

According to data published by idealista, the gross profitability of buying a property to rent increased to 7.2%. This is a good figure as it is considerably higher than the rate offered by 10-year government bonds (2.5%).

How to calculate the profitability
of a rented property?

In relation to the profitability of housing, the most profitable Spanish capitals are Lleida and Murcia with a profitability of 8.6% in both cases. They are followed by Huelva with 8.1%, Cuenca with 7.9% and Almeria with 7.4%. In Barcelona the profitability is 5.1%.

How is the profitability of a property for rent calculated?

To calculate the profitability of a rental property it is necessary to consider two aspects:

– The price of the property you want to buy.

– The rental income that can be charged for that property.

With these two figures, the following formula is applied to calculate the gross profitability:

Annual rent received / price of the property x 100.

To obtain the net profitability it is necessary to:

– Increase the purchase price with the expenses related to the purchase (purchase and sale costs, maintenance, real estate commissions, etc.).

– Deduct from the gross rent the annual expenses (community expenses, insurance, consumption, taxes, etc.).

Therefore, the net profitability is obtained with the following formula:

(Annual income – expenses) / Investment x 100

In our post How to calculate the profitability of a rented property, you can see an example of the profitability calculation and a video explaining how to do it.

Mistakes to avoid when buying a flat to rent out

To obtain a good profitability it is very important to avoid a series of mistakes such as those detailed below:

– Not doing the calculations correctly. Buying a flat to rent may or may not be a profitable investment depending on how you make the calculations. It is essential that you consider all the expenses that you will have and at what rent you will be able to rent the flat.

– Thinking that housing prices are always going to increase. The residential market is cyclical and prices will fluctuate over time, so you should focus on the income you get each month and adapt it to market fluctuations whenever possible.

– Not having patience when buying. As we said before: buying a house to live in is not the same as buying a flat to rent. In the second case, it is essential that you plan ahead and that you are clear about the objective you wish to achieve. It is also important that you visit several flats in order to have a global idea and several options. Another aspect to take into account is that you should not only see the flat, but also analyse the neighbourhood, the services it has and the neighbours, among other aspects.

– Not counting on the help of professionals. Investing without knowing the market and without the help of professionals in the residential real estate sector is a risk. It is therefore essential that you contact professional experts to help you choose the product that best suits your investment needs.

– Running out of available cash. Even if you have the money available to make the entire investment, it is essential that you do not run out of money and therefore apply for financing from banks, which can offer mortgages of between 70% and 80% of the value of the flat.

In conclusion, buying a flat to rent is a complex investment that can be profitable or not depending on many factors that can be anticipated, as we have seen. The most important thing is to make the calculations correctly without overlooking any of the aspects we have discussed and to have the help of real estate professionals who are experts in housing investments.



Ana Vila

Ana Vila

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