You are about to take the plunge and invest in real estate, but how do you distinguish a profitable property from a losing investment? We offer you some advice and highlight the key elements to consider before signing the preliminary agreement.
Key Considerations
Purchase Price and Rental Yield
First, pay particular attention to the all-in purchase price. Indeed, when purchasing an income property, you must consider not only the purchase price you will pay but also registration fees (12.5%) and notary fees (approximately 1.5%).
If the amount you obtain seems reasonable compared to the planned investment, do not forget to inquire about the total rent currently received from renting out the house or apartment, ideally calculating it over 11 months. This tip will help you cover any potential rental vacancy among the available apartments. To achieve a satisfactory rental yield, the currently obtained yield must be equivalent to 5% of the all-in purchase price.
Impact of Potential Renovations
Note that, on average, a rental property is considered to require minor refurbishment every 7 to 10 years and that certain upgrades are sometimes mandatory, even if you plan to leave the property as is. For example, if the electrical installation is old and no longer complies with current standards, it is required to update it within 18 months following the purchase of the house or apartment concerned.
Also monitor for any urban planning violations that may have been committed, which could lead to additional work and costly regularization.
Therefore, add these amounts to your purchase price before evaluating your rental yield as explained above.
Reliable Tenants
Do the current tenants pay their rent on time? This is a crucial question! Indeed, it is essential to obtain this information from the previous owner in order to avoid arrears, administrative fees, and the procedures required to regularize such situations. In other words, always prioritize a property occupied by reliable tenants.
The Importance of the Neighborhood
The neighborhood in which you plan to invest has a direct impact on the profitability of your investment. Popular neighborhoods will generally offer a higher rental yield than more exclusive areas. Indeed, properties located in these neighborhoods are often smaller, allowing for a higher rent per square meter. Furthermore, smaller units help distribute the risk of rental vacancy among several tenants. However, these properties may be of lower quality and will require more significant work as well as more time-consuming management.
Also consider consulting the future developments planned by the Municipal Administration or the Region in the neighborhood you are interested in. Indeed, these improvements could potentially represent a significant added value for the property.
Finally, some neighborhoods are better served by public transport than others. This last element will be valued by many tenants, especially if the house or apartment is located in Brussels or another large city.
Which Property for your Rental Investment?
As we explained above, the size of the property has a direct impact on the rental yield of the house or apartment you choose: “The smaller the area, the higher the rental yield”, summarizes Amaury Hermanns, founder of the Hermanns Real Estate agency.
“For your real estate investment, we advise you to opt for a studio or an apartment rather than a house or a villa. The latter will not offer you an attractive rental yield: you would purchase it for approximately €650,000 and obtain a single rent of €1,400, for example. In comparison, a building of the same price would allow you to rent out 4 distinct apartments at €750 each,” he specifies.
Besides the size of the property, are there other criteria to consider?
Absolutely! A garden and/or a terrace will also contribute to increasing the rental yield of your property, and even more so after the lockdown period we have just experienced! It will certainly be more expensive to purchase, but this investment will quickly pay off.
Our Final Advice before Investing in Real Estate
Our expert tip? Engage an expert to conduct the entry and exit inventory when a tenant changes. You will have to pay a small supplement in your management fees, but this will save you many euros when it comes to assessing rental damages. Your rental yield will only increase as a result.
There you have it, you now have the tools to better plan your future real estate investment. So… get started on your projects!
