Real estate investment is a popular choice among investors looking to build a passive income stream and achieve long-term returns. Buying an apartment with the intention of renting it asks several crucial questions, including the convenience of the investment and the calculation necessary to achieve a monthly income goal, such as €2,000 from rentals alone. This article explores in detail whether it is worth investing €150,000 for an apartment to rent at €500 per month and how much you need to invest to achieve a monthly income flow of €2,000
through rentals.
Table of Contents:
Investment Assessment
Return on Investment
The purchase of a property from 150,000€ to rent it for 500€ per month implies an annual income of 6,000€. This corresponds to an annual gross return of 4%. This percentage does not take into account management expenses, maintenance, real estate taxes, or any vacation periods of the property, which can significantly reduce the net return.
Additional Costs and Expenses
Managing a leased property involves various costs:
- Maintenance and repairs: The costs of keeping the property in good condition may vary.
- Condominium fees: If the apartment is located in a condominium, there will be periodic condominium expenses.
- Real estate taxes: Local property taxes may affect performance.
- Vacation periods: Periods during which the apartment remains empty without generating income.
Reach a Monthly Income Goal of €2,000
To achieve a monthly income of €2,000 by renting properties purchased at €150,000 each and rented at €500 per month, it is necessary to do some calculations.
Calculation of the Number of Properties
Target Monthly Income÷Monthly Income per Apartment=Number of Apartments RequiredMonthly Income÷Monthly Income per Apartment=Number of Apartments Needed
2,000€÷500€=42,000€÷500€=4
To reach a monthly income of €2,000, you would need four apartments, each purchased for €150,000.
Total Investment Required
Number of Apartments×Cost per Apartment=Total InvestmentNumber of Apartments×Cost per Apartment=Total Investment
4×150,000€=600,000€4×150,000€=600,000€
To obtain €2,000 per month in rents, you need an initial investment of €600,000 in four properties.
Investor Considerations
Income Flows and Diversification
While investing in rental properties can provide a relatively stable income stream, it’s important to consider diversifying your investments. Not trusting your entire investment portfolio to a single asset class can help mitigate risks
.
Financial Leverage
The use of leverage, or financial leverage, through a mortgage loan can increase the return on the equity invested. However, it also involves increased financial risk.
Capital Growth
In addition to rental income, a real estate investment can appreciate over time, offering the possibility of capital gains upon sale. The location and conditions of the real estate market play crucial roles in this aspect
.
Investing in rental properties can be an effective way to generate passive income, but it requires in-depth analysis and strategic planning. Considering the example of an investment of 150,000€ for a monthly return of 500€, and multiplying the transaction to achieve an income objective of 2,000€ per month, it is evident that this investment requires substantial capital and careful management of the properties. Before proceeding, evaluate all factors, including hidden costs, the possibility of a property appreciation, and your risk tolerance. Professional financial advice can offer additional insights to successfully navigate the real estate market.
