Return on Investment - A Sample Calculation
This Development comprises of 300 brand new apartments, a
large communal pool, attractive, landscaped gardens and 24
hour security. Located about a mile inland, it is situated
between Fuengirola and Marbella, near a golf course. The
apartments are approx. 65 – 70m2; include two double
bedrooms, both with ensuites, an open plan
kitchen-lounge-diner, a small patio area and a larger
enclosed grassed terrace.
Guideline Chart for Rental Income
| Month |
Number of weeks
Occupied |
Weekly Rental Amount
(in Euros) |
Total Rent per Month
(in Euros) |
| Jan |
2 |
400 |
800 |
| Feb |
2 |
400 |
800 |
| Mar |
2 |
500 |
1,000 |
| Apr |
3 |
600 |
1,800 |
| May |
3 |
700 |
2,100 |
| Jun |
4 |
800 |
3,200 |
| Jul |
4 |
900 |
3,600 |
| Aug |
4 |
900 |
3,600 |
| Sep |
4 |
800 |
3,200 |
| Oct |
2 |
500 |
1,000 |
| Nov |
2 |
400 |
800 |
| Dec |
2 |
500 |
1,000 |
| |
|
|
|
| Total Weeks Occupied |
34 |
|
Total Gross Annual Income = 22,900 Euros |
RETURN ON INVESTMENT
| Purchase Price |
166,000 € |
| Cash Deposit (Net Personal Investment) of 30% |
49,800 € |
| Mortgage arranged for 70% |
116,200 € |
| Interest Only Mortgage arranged over 20 years @
5% per month |
484.20 € |
Income
Total annual rental income assuming
34 weeks occupancy at above rents |
22,900 € |
| Total Net Income |
22,900 € |
Ongoing Annual Expenditure
| Annual Mortgage Payment |
5,810 € |
| I.B.I. Property Tax |
250 € |
| Services (variable) |
500 € |
| Letting Agents Fees (optional additional expenditure) Commission @ 20% of annual rent
(22,900 €) & VAT @ 16% |
5,312.80 € |
| Total Expenditure |
13,973 € |
| Net Income (22,900 € less 13,973 €) |
8,927 € |
Estimated Annual Increase in Capital Value
(166,000 € x 15%) |
24,900 € |
| Net Return on Personal Capital Invested (Net Income divided by Net Personal Investment x 100)
8,927 divided by 49,800 x 100
|
17.93% |
| Total Return on Personal Capital Invested (Total Return divided by Net Personal Investment x 100)
33,837 divided by 49,800 x 100
|
67.94% |
Important Note:
The above example should be viewed as a broad guideline,
a useful generic formula for calculating potential return on
investment
It does not take into consideration the additional
mandatory fees and taxes which typically approximate 10% of
the purchase price.
There is no allowance for any extraordinary repairs or
maintenance, although it is unlikely that an owner will
incur any significant costs with a new build property.
Furnishing costs have been excluded. (A complete
furnishing package, including white goods, tailor made for a
2 bedroom rental property can be purchased for less than
10,000 Euros.)
Mortgage Products and associated charges vary between
Lenders and in accordance with an individual’s financial and
personal circumstances.
The above calculation assumes an Interest Only rather
than a Repayment Mortgage.
Capital Growth is assumed at 15% - this percentage may be
a higher or lower figure.
Tax is due on any profits.
Lettings Agents commission vary between 10% and 30%.
Employing an Agent to let and or manage your property is
optional; we highly recommend taking advantage of this
service if you want to achieve market rents and maximum
occupancy rates.
Always err on the side of caution when calculating
potential yields and return on investment.
Back to Buying
Guide
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