The Complete Guide to Property Renting and How It Can Help You Make Money
What is Property Rental and how to get started?
A property rental is a home or apartment that you can rent for a period of time. You can find these properties on the internet, in classified ads, or even in person. So You might be able to find some listings on real estate websites like Zillow.com and Trulia.com. You can also contact local property managers to find out about available rentals in your area. And what requirements they have for potential renters.
Your target customers are persons who are looking for a place to stay for just a few months. They might want to consider renting an apartment from a private landlord or a property management company that has many properties in the area. A property management company has the advantage that they will usually have more flexible lease terms than if you were renting from an individual homeowner who only owns one property and is trying to make money off of it as much as possible
Though you could take a risk and rent a property for a long period for re-renting this is against the law in several places like Malta. Also breaking even and managing the expenses will be a rather challenging task. Ideally, get a loan and buy your first rental property, think small, and consider the repayment vs forecasted income before you venture into such cash flow opportunities.
What to look for when buying a property as a rental investment
If you want to be a success in your rental business you need to make your homework before you buy property. The common rule is to follow these basic assumptions and make a calculated decision.
- Check on Airbnb and rental sites to see the actual rental value for your property. Then multiply by 10 as you will need a buffer of 2 months for vacancy and maintenance/upkeep expenses
- Check your total upfront investment, if you are taking a bank loan make sure that you take into consideration administration charges and interest rates.
- Work your yearly profit or loss out of this investment
For example, let’s say that an apartment in a good location like Sliema, Malta costs on average 200K euro. You will need a 40K down payment and pay an interest fee of about 4% on the remaining amount for 30 years. This means that roughly you will be investing 343K euros but that is over 30 years. And with the rate of inflation you should not let this amount demotivate you. What you should be looking at is the monthly repayment. On average on such a loan, you will pay 900 euros per month. On the positive side, you are likely to rent such an apartment for 1200 per month, leaving you a balance of 300 euros per month. Now factor in income tax and at the end of the day, you will have about 180 euros left in your pocket.
There are 2 more factors to keep in mind when calculating the return on investment of your rental property:
The administration cost and work behind registering and managing your property. This is less work than you think if you do a correct assessment of your Tennant when renting your property so I tend to ignore this and treat it as a hobby.
The fact that you will have upkeep and maintenance costs also your property being long let or short let will sometimes be vacant. To be safe here I calculate that my property will be rented 10 months a year. The other 2 months to cover vacant time and upkeep costs.
Summary of my case study
So should iI buy the Sliema Apartment for rental? Now that I have the numbers I can make a better decision. I will be making 1200 euro from rent for 10 months (factoring in vacancy and maintenance) 12K yearly. On my loan, I will be paying 900 per month for 12 months which is 10,800. I will also pay 2,160 in tax yearly. So at the end of the day, my rental property for the first year will result in a loss of 960 Euro. So from my forecast, my return on investment in the first year is in the red. One could conclude that this is not the right investment but if you consider
- Property prices will go up and so does the rent but not the repayments. This means that after a few years you will be making a monthly profit from the property.
- You are covering 90% of your repayment which means after 30 years you would have paid off the property and that is a great investment.
I would say that this is a good opportunity. If you are Renting Commercial Property in Malta You Can Visit QuickLets Malta.
