greenieS
Verified member
If you put some money aside, which you plan to invest in the near future, you should know that buying an apartment or renting it is a very profitable idea, which will bring you a steady income over a long period of time. time.
Although real estate investments are profitable, there are certain things to keep in mind before making a purchase, so make sure that you get the most value for your money on the property.
The easiest way to do this is to take into account two indicators, the payback period and the return, which will help you determine how long it will take to recover your investment and identify the best real estate opportunities. In the following, we explain how these values are calculated and how you can decide which is the most advantageous investment you can make.
How to calculate the amortization period
As I said, the amortization period is the time when the investment in the apartment will be fully recovered from the money obtained from renting it. This analysis is necessary before purchasing the property, because this is the only way you will be able to make sure that you will recover your money in the shortest possible time.
In order to determine the amortization period of a real estate investment, you will need access to two pieces of information: the price of the property and the value of the rent in the area where the apartment is located, for a property with the same number of rooms and the same facilities as the one you want to buy it. Although you don't have to make a lot of effort to find out the price, as it is available in the sale announcement, when it comes to rent, you have to do a little study. To get started, you can go to a real estate ad site and look for all the properties available for rent, which correspond, both in terms of location and facilities, to the one you want to buy, to analyze the value. rent required for each of them and average them. The value obtained can also be the price of the monthly rent of the property, in case you decide to buy it.
With this information, you will be able to use the potential gross rent multiplier, the best way to determine the depreciation period of a home, by applying the following calculation formula: depreciation value = property purchase cost / (Monthly rent x 12). Following this calculation, you will find out the number of years in which your real estate investment will be fully recovered. For example, if you decide to buy a property whose price will be 45,000 euros, at a monthly rent of 300 euros, the repayment period will be 12.5 years.
How to calculate the yield of a property
When you buy a property in order to rent it, in addition to the repayment period, you will also want to know how profitable your investment will be. To determine this, it is necessary to determine the return on the property, ie the percentage that the price of the annual rent represents from the acquisition cost of the property. Thus, in the case of the example presented above, the annual gross capitalization rate will be 8%, ie 3,600 euros, satisfactory for a real estate investment. However, this value should be considered as a gross income, as there are many other variables that you need to consider to determine how much profit you will get from your investment.
Under these conditions, the net income capitalization method is the most efficient way to determine the return on a property. To apply it, you will need to identify all the potential expenses that the property will incur over time and that you will have to bear. You can start with the purchase of the property when, in addition to its price, you should determine whether it needs repairs or renovations and what the costs will be.
You will also need to take into account the fact that the property may remain unoccupied for a certain period of time, during which your rental income will be 0, and adjust the value of the potential gross income of 3,600 euros, with a margin of 10% per year. Thus, you will get 3240 euros, which is the actual gross income.
Next, you will need to take into account the amount of annual expenses you have to bear, respectively: tax, insurance or any repairs, which will be around 400 euros per year and will be deducted from actual gross income. Thus, you will obtain the net operating income, which will be 2,840 euros, ie a capitalization rate of 6.32%.
How to determine if property is an investment opportunity
By calculating the payback period and the return, you will be able to get a concrete idea of how profitable your investment is. However, it is important to know the minimum threshold that must be reached for a property to be considered an investment opportunity.
Although there is no universally applicable value from which a property becomes an investment opportunity, most experts agree that a property can be considered attractive if it offers a minimum return of about 6%, or a payback period. investment of about 15 years.
Real estate investing is an effective way to earn a steady long-term income. Use all of the above information to discover the best opportunity on the market to maximize your profits.
Although real estate investments are profitable, there are certain things to keep in mind before making a purchase, so make sure that you get the most value for your money on the property.
The easiest way to do this is to take into account two indicators, the payback period and the return, which will help you determine how long it will take to recover your investment and identify the best real estate opportunities. In the following, we explain how these values are calculated and how you can decide which is the most advantageous investment you can make.
How to calculate the amortization period
As I said, the amortization period is the time when the investment in the apartment will be fully recovered from the money obtained from renting it. This analysis is necessary before purchasing the property, because this is the only way you will be able to make sure that you will recover your money in the shortest possible time.
In order to determine the amortization period of a real estate investment, you will need access to two pieces of information: the price of the property and the value of the rent in the area where the apartment is located, for a property with the same number of rooms and the same facilities as the one you want to buy it. Although you don't have to make a lot of effort to find out the price, as it is available in the sale announcement, when it comes to rent, you have to do a little study. To get started, you can go to a real estate ad site and look for all the properties available for rent, which correspond, both in terms of location and facilities, to the one you want to buy, to analyze the value. rent required for each of them and average them. The value obtained can also be the price of the monthly rent of the property, in case you decide to buy it.
With this information, you will be able to use the potential gross rent multiplier, the best way to determine the depreciation period of a home, by applying the following calculation formula: depreciation value = property purchase cost / (Monthly rent x 12). Following this calculation, you will find out the number of years in which your real estate investment will be fully recovered. For example, if you decide to buy a property whose price will be 45,000 euros, at a monthly rent of 300 euros, the repayment period will be 12.5 years.
How to calculate the yield of a property
When you buy a property in order to rent it, in addition to the repayment period, you will also want to know how profitable your investment will be. To determine this, it is necessary to determine the return on the property, ie the percentage that the price of the annual rent represents from the acquisition cost of the property. Thus, in the case of the example presented above, the annual gross capitalization rate will be 8%, ie 3,600 euros, satisfactory for a real estate investment. However, this value should be considered as a gross income, as there are many other variables that you need to consider to determine how much profit you will get from your investment.
Under these conditions, the net income capitalization method is the most efficient way to determine the return on a property. To apply it, you will need to identify all the potential expenses that the property will incur over time and that you will have to bear. You can start with the purchase of the property when, in addition to its price, you should determine whether it needs repairs or renovations and what the costs will be.
You will also need to take into account the fact that the property may remain unoccupied for a certain period of time, during which your rental income will be 0, and adjust the value of the potential gross income of 3,600 euros, with a margin of 10% per year. Thus, you will get 3240 euros, which is the actual gross income.
Next, you will need to take into account the amount of annual expenses you have to bear, respectively: tax, insurance or any repairs, which will be around 400 euros per year and will be deducted from actual gross income. Thus, you will obtain the net operating income, which will be 2,840 euros, ie a capitalization rate of 6.32%.
How to determine if property is an investment opportunity
By calculating the payback period and the return, you will be able to get a concrete idea of how profitable your investment is. However, it is important to know the minimum threshold that must be reached for a property to be considered an investment opportunity.
Although there is no universally applicable value from which a property becomes an investment opportunity, most experts agree that a property can be considered attractive if it offers a minimum return of about 6%, or a payback period. investment of about 15 years.
Real estate investing is an effective way to earn a steady long-term income. Use all of the above information to discover the best opportunity on the market to maximize your profits.
