Before making an investment, it is normal to ask the question: "How much will I earn from my home when I offer it for rent? “. If real estate investment is the safe investment par excellence, it is advisable to be interested in what it will really bring back to its owner.
To do this, the rental profitability allows you to know the gain achievable on the rental of the property, expressed as a percentage. The higher it is, the better the investment.
How to calculate the profitability of a rental?
Calculation of the gross yield
The calculation of the gross return allows to judge the interest of an investment. It will allow you to compare returns between different assets, sectors, etc. Note, however, that the gross yield is not the only element to be taken into account when choosing a rental investment. Here is the formula:
(amount of rent x 12) x 100 / purchase price (including notary fees, work, the cost of credit, etc.).
For example, an apartment bought for 180 000 € including notary fees, rented 600 € per month yield 4%. (7 200 / 180 000 x 100).
While it has the advantage of being simple to calculate, gross profitability does not take into account the various charges and other costs related to housing, which can strongly impact profitability. The solution is therefore to calculate the net profitability.
Calculation of the net return
Once you become an owner, fees accumulate such as charges or taxes, for example. To calculate the net profitability, it will be necessary to reduce rents by certain charges: loan interest, property tax, co-ownership charges, maintenance and repairs of the property, insurance, etc. Adding them to the calculation will give the net profitability:
(amount of rent x 12) x 100 - (rental charges) / purchase price(including notary fees, work, the cost of credit, etc.).
Considering that these expenses represent on average 25% of the rents collected, the net profitability is reduced to 3%. A very good profitability for a secure investment that will increase in value on the market over time.
You can go even further and calculate the "net-net" profitability, i.e. the profitability net of charges, plus tax benefits. We would point that certain works or loan interests are deductible from the rents to be declared.
