What is it?: Net Yield is the percentage of the value of the property that you can make each year by renting out the property. For example, if you had a property worth EUR100,000 and you could make a net profit of EUR5,000 each year from renting it, then your Net Yield would be 5%.Please note that the Net Yield is dependent upon even more factors than the original buying price of the property and so you really need to do your own homework in order to find out the true Net Yield figure of the property you’re interested in.
|Start off by calculating the Gross Yield by looking at what similar properties rent out for each month and multiply by 12 to get the annual amount. From this you need to deduct all of the expenses incurred by owning your property including things like ground rent, service charge, basic utilities, managing agent’s fee, wear and tear, etc., etc. Unless you get really lucky, you also need to bear in mind that your property is unlikely to be rented for 365 days per year. If you have a capital city property that is being rented to a long-term tenant, hopefully it will not be empty for long. However, if you have a seaside or ski property with a short season, your property could easily be empty for more than half the year.|
When making these calculations, it is much better to be over-pessimistic than over-optimistic or else you could well end up getting into serious money problems by over-extending yourself.
What’s it good for?: You need to know the Net Yield in order to calculate whether you’re going to be able to pay all of the
mortgage payments from your rental income alone or if you need to subsidize the payments each month.
Let’s assume you are buying a property worth EUR100,000 which has a Net Yield of 5%. Each year you will receive an annual income of EUR5,000, or EUR416.66 per month. Compare that to what your mortgage will be costing each month. If your mortgage is costing EUR600 per month, it means that you will need to fork out an additional EUR183.33 each month from your own pocket. Can you afford that? If not, don’t do the deal.
Hopefully, over time, the value of your property will increase while the Net Yield percentage will stay the same so, if all goes well, the property should be able to start paying for itself after a few years. Don’t stake your worldly wealth on this happening though because interest rates can also rise too. It’s always good to have a safety net in case things don’t go quite as well as you think they will.
What is it?: The additional sums payable on top of the purchase price of the property for taxes, lawyers’ fees, real estate agents’ fees, etc.
What’s it good for?: For budgeting purposes, you need to know exactly how much your property is going to cost to buy, including all of the extras. If you were to spend every penny of your budget on the purchase price of the property alone, you could end up having problems when it comes to paying for the extras, particularly if you are looking to get a mortgage for most of the purchase price. If you’re short of cash and looking to get a mortgage covering most of the costs, these extra costs might make a big difference between your decision as to whether you can afford to buy a particular property in a particular country or not.
These costs are described in more details in the Buyers’ Guide section for each country. They include lawyers’ fees, but not surveyor’s reports. In some countries real estate fees are paid usually by the sellers, in others by the buyers, and in other cases, are split 50/50. The percentages featured here reflect the most common arrangements.
For fixed fees and for taxes paid on sliding scales, percentages are based upon a purchase of a property worth EUR100,000.
What is it?: Are there regular budget flights traveling between the UK and the location.
What’s it good for?: Before you sign on the dotted line to purchase a property, you’re going to want to make a few trips to get to know the market and complete all of the paperwork. You’re also probably going to want to visit your property from time-to-time. This can get expensive if there are no budget flights flying there.
In addition, regular budget flights make a huge difference to the destination’s becoming an important tourist centre. For the resorts, there could well be charter flights flying during the season. You need to check this out because it gives a good indication as to the length of the season, which you need to know for the purposes of calculating your Yield. If there are no flights to a destination for six months of the year, your chances of renting out your property for those six months is not that great usually.
Even if there are budget flights from the UK to your chosen destination, it doesn’t necessarily mean that there are flights from your local airport. If you’re in the South East, then you have a wide choice. But if you’re in the North or Scotland, you could find your options a lot more limited. You can check where the budget airlines fly to and from by using the Budget Airline Routes listing in our Tools Section.Growth
What is it?: The percentage by which the country’s property market grew in the previous 12 months.
What’s it good for?: Probably less than you think it does. Although this data is treated like the Holy Grail by a lot of investors, it really asks more questions than it answers.
If a market is growing like crazy, does that mean that it’s going to continue, or is there a danger of a bubble forming, which could lead to straight into a price adjustment where prices actually go down? On the other hand, if the market is showing low or even negative growth, does this mean that it’s totally dead, or could it perhaps be a great buying opportunity for the medium and long term?
The growth figures alone don’t give the full picture. As a bare minimum, check the growth figures against the current EUR/m2 prices for a better indication as to whether property in the market is currently looking cheap or a bit over-priced.Another problem is that the figures are average growth rates across the entire country. Different cities, different districts and even different streets can grow at quite different rates. Take Bulgaria as an example. The current figure of 22.6% seems excellent. But when it’s broken down into areas, you will find weakening growth on the coast, strengthening growth in Sofia, but negative growth for the ski resort of Bansko.
So, again, make sure you do your homework before you choose which market to invest in based upon past growth levels alone.
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