I'm trying to figure out whether it is a good business to buy a flat and rent it out.
These are the numbers I have so far:
- Property: 150,000
- Downpayment (30%) : 45,000
- Interest rate/year: 4% (less right now but I'm sure it will rise soon)
- Interest: 4,200
- Property Insurance: 100 euros/year (wild guess)
- Landlord calls (to be cared for by a 3rd party firm): 300 euros/year (another guess)
- "Finder's fee" paid for real state agent to find a tenant: 700 euros + 23% vat (assuming I would need to find a new tenant every year but the flat would be occupied all the time)
- Property management fee/year: 2400
Expected Rent: 8400 euros/year
Yield = (Rent - Costs) / Property value
Yield = (8400 - 7861) / 150,000
Yield = 0.36%
That would mean a net increase in wealth of 539 euros (150,000 * 0.36%)
It would also mean a gain of 1.2% on my own capital invested (45,000 / 539)
I'm sure some of the numbers above will be very off but I hope they will serve for the example.
Am I really making money on that scenario?
I live in Finland and inflation here was 3.42% last year.
- Should I take inflation into account on my calculations?
Should I take 'cost of lost opportunity' into account?
- If so, what could I compare it against?
The idea behind it is to slowly build up capital on the flat to eventually remortgage it and buy another one, building up a 'portfolio of flats' in the long run.
The rent is enough to pay the interest, but I would have to supplement the payments to cover the principal.
How do I account for that investment on this scenario?
- I can cover the payments, but is that a sound financial decision?
How many years mortgage should I take?