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We hear that ‘investing in bricks and mortar is never a waste of money’, that ‘rental demand is exploding’ and that ‘with rising prices, it’s here to stay’.
All true, of course. Yet, many factors eat away at the return you can expect from a rental investment. Investing in rental units exposes you to untimely work, unreliable tenants, and regulatory changes.
We are certain, however, that rental investment remains an effective investment, as are the tens of thousands of Belgian multiple owners. It is, provided you calculate your income and expenditure as accurately as possible and make informed investment decisions. That’s what Up2Rent’s financial dashboard is all about.
This is the ratio between the purchase price and the annual rent.
By purchase price, we mean the sale price, the costs associated with the sale (registration fees and mortgage costs, for example), and the work required before the property can be let. For example, if an office building is converted into a series of flats, the cost of these renovations must be taken into account when calculating the gross yield.
However, gross yield is not the whole story. Once the unit is on the rental market, certain events can erode the rental income.
The net yield takes into account a series of parameters that cannot always be accurately anticipated, for instance taxes and insurance, or required work, whether at the level of a condominium or for each unit.
This work can be substantial, particularly when it involves work on boilers, lifts, or the roof, or more straightforward, in this case often at the level of the rental unit – a pane to be replaced, for example. This work is deductible as part of a professional property activity. They are also partly predictable and, ultimately, increase the value of the property in the event of a subsequent resale. It’s a necessary evil at the time, for future benefit, as experience shows.
Vacancies can also erode the expected rental yield. Banks tend to assume a 20% annual vacancy rate. However, very liquid residential lettings may have almost no vacancy at all!
It’s always better to have a clear break clause with the tenant and to manage the lease proactively so that you don’t end up having to choose between an empty unit and the price of your choice!
Management costs, which are more or less visible, also reduce the net rental yield. This depends on the amount of time that one or other of you devotes to it (joint ownership, estate agency, yourself to the detriment of another professional activity). Here again, management is inevitable but can be optimised. In any case, that’s what we are trying to achieve with Up2Rent!
These parameters are multiple and variable: that’s why, when we created Up2Rent, we wanted to include a dashboard showing these financial indicators. Our users, or our users’ customers, can see in real-time how their rental portfolio is doing.
Here we evaluate the key figures, namely the gross purchase price (purchase price plus additional costs), the net purchase price (purchase price of properties and units), the total property value in the portfolio, and the yield generated. With this, you’ll find the expected occupancy rate, based on active leases, and the expected rental income.
All these parameters are customisable: the idea is that each user can personalise his or her dashboard, for example by filtering to see the performance of a particular property and its units, or the performance that a particular owner can expect.
Finally, Up2Rent also makes it possible to identify the champions or red lanterns of a rental portfolio at a glance, here. Our aim? To make it easier to make informed decisions, the key to long-term, successful investment!
