Choosing a property based on rental yield

There are many influences on the decision of which property to purchase, either nationally or internationally. Property buyers are either short term investors looking to buy and sell their property quickly to make a return on a growing property market or long term investors, who wish to use the property as a second home and/or providing extra income from short or long term letting.

This article outlines which property is a sound investment to get the rental return you require for short term letting.

The most important thing to calculate before purchasing a property is the Rental Yield. The rental yield is the net yearly rental income as a proportion of the property purchase price.
To calculate this prior to a purchase, look on the internet for similar properties for rent to determine an idea of the rental income per week you will be able to achieve. From this value you will need to deduct allowances for rental service companies (typically up to 25% of the rent obtained) and taxation on the income. It is normal that you can offset all costs in renting and running the property against rental income received. Consult a specialist accountant for further advice on this matter. The resulting figure will be your net weekly rental figure.

Next, take a conservative estimate on the number of weeks you will potentially be able to rent your property. This will vary from country to country and is considered wise for you to consult Aquavista to gain a good idea. To start with look at the total rental season, deduct periods in which you intend to stay at your property and then estimate being 2/3 to 3/4 full for the remaining period.

Some examples for total rental periods are Turkey, which has a long summer season, the rental market runs from about mid April until the end of October. Bulgaria has a very short summer, so the rental market is only June to August. In the ski regions such as in Austria, the ski season last for about sixteen weeks plus you may be able to get further rental income in the peak summer period.

By multiplying the net weekly rental figure by the realistically achievable number of weeks you can rent you will get the yearly net rental income. Divide this figure by the property purchase price and multiply by 100 to get the Rental Yield.

For example an apartment in the ski regions of Austria can get a weekly income of say GBP350. Taking off 25% for the rental management company and a further 5% (est.) for taxation the net weekly rental income would be GBP245
Assume you can get 12 weeks winter rent and a further 4 weeks in summer the total number of weeks rent would be 16. Total yearly net rental income would then be GBP245 x 16 = GBP3920. With the property costing GBP100,000 then the Rental Yield would be 3920/100,000 x 100 = 3.92%

Determining the realistic weekly rental charge for a property has many factors. The factors of the property itself are self evident and these same factors usually determine the property prices. Some items have a big impact on the charge. Not having access to a swimming pool in a hot climate will lower the charge significantly and lower the number of weeks you will be able to find clients to rent it. A ski in/out property will always command a premium and almost guarantee full rental in the Alps as will a property on the 18th green of a golf course.
Location obviously has an impact on the rental achievable. Do not expect the cheap property bought in the middle of nowhere or 20 minutes hike up a steep hill with no public transport to gain many enquiries.

Established holiday destinations, popular with holiday companies, are always easier to find clients to rent your property for. However the competitive holiday companies can have a negative impact on the price you can achieve. People will only pay a certain premium for a private villa compared to an all inclusive holiday at a bargain rate, so you have to remain competitive in the rental pricing.

There is sometimes one off factors that can increase rental yield. The ski region in Austria were we at Aquavista market property for sale, is bidding for the 2014 Winter Olympics and has made the final three. If Austria is successful, the increased rent for this period will be short term and should not really be an influential factor in determining the rental yield – just see it as a bonus!

Aquavista gains a good insight into the rental market in Turkey with its rental board – www.property-rental-turkey.com. We know that the most established resorts, even though the properties tend to be more expensive, are areas such as Icmeler on the Marmaris Peninsula or the town of Bodrum. These locations receive by far the highest proportion of enquiries and command a premium rental charge.
In the next few months Aquavista will be re-launching this successful rental website for all countries and will be hugely improved and updated to include booking calendars and even a full booking secretary that will manage all your bookings from start to finish, all for just GBP5.99 a month.

If the rising property market comes to an end in the country you have purchased or wish to purchase a property, then the rental yield the property can achieve becomes a significantly important factor.

A couple of points to note when looking at rental yield. Make sure any Rental Yield quoted is net rental yield. It is best that you do your sums than beleive those written by a developer who may not take into account costs and assume you get rental income every week.
Guarantee rent offered by some developers is nearly always incorporated in the price of the property. We always advise our clients to ask not to have the guarantee rent and have the amount deducted from the property. After all - why give the money to the developer now for them to pay back to you over the next few years?

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