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Home » Services » Selling an Income-Generating Property or a Real Estate Holding Company » Selling an investment property » Le calcul du rendement d’un bien de rapport

Calculating the return on an investment property

Investors are regularly confronted with the notion of real estate “return”. By return, we mean the rate of return generated by an investment, i.e. the ratio between the rental income obtained and the value of a property. The concept is similar to that of the profitability ratio.

The return is generally expressed as a percentage. It is not a return on the equity invested, but on the sale price of the property, and is calculated as follows:

Return = Annual rent / Acquisition price + acquisition costs

By default, the rental return will correspond to the purchase price plus acquisition costs. This is the method used by investment professionals, whether for residential, office or commercial properties.

To simplify the example below, we’ll take a flat rate of 13.5% for “standard” acquisition costs (registration fees + notary fees + credit charges) for a sale in the Brussels-Capital Region.

It is understood that the amount of rent not including charges must be taken into account in the calculation.

Example:

Mr. Dupont owns an appartment in Brussels which is currently rented for EUR 1,000 + EUR 250 for service charges.

  • The value of the appartment is € 200,000.
  • Annual rental income excluding charges: € 12,000
  • Fixed acquisition costs (13.5%): € 27,000
  • Return on investment “deed in hand”: € 12,000 / (€ 200,000 + € 27,000) = 5.28%.

 The net return takes into account all costs relating to the property, as well as any provisions that may have been calculated for each investor.

If we take the above example and include the property withholding tax (800 €), insurance (500 €) and a 5% provision for works and rental unemployment (600 €): we obtain the following net return:

Net return = (€12,000 – €800 – €500 – €600) / (€200,000 + €27,000) = 4.45%.