Four key elements
a) Rental potential of the property
In other words, am I sure I can find a tenant for this type of apartment located in that particular location?
The adequacy of the property acquired in relation to the market potential is obviously a key element in the success of a real estate investment. We should also mention the importance of targeting your property according to the type of client: experts, traditional clients, students, executives of multinationals.
b) Rental yield
Establish your financial plan on the basis of a reasonable estimate of the rental yield, while subtracting the unavoidable costs: property tax, maintenance work, owner insurance, rental refurbishment (count about 10% of the rental income to be allocated to this expense) and finally the fees of the real estate agent and/or the manager of your property.
c) Capital gain
The rental yield is generally proportional to the quality of the location in which the property is located.
Depending on the expectations, you can consider three types of location:
“Reasonable man” location
- You buy a property in a stable environment from a social and urban perspective.
- You immediately know the parameters while expecting a similar situation for future years. Your capital gain will be progressive and in line with average market increases.
- You invest in a neighborhood that you think will experience a boom with an increasing demand for real estate. All cities where housing demand is growing have experienced and will continue to experience building developments in areas to which less attention was paid a few years ago. In this case, you can hope to boost your capital gain by doubling this growth potential ... or do less well if your forecasts are not met.
- You buy a property located in a "top location" for which you do not count on a very attractive yield (it will vary from 2% to 3%) but you count on long-term capital gain considering its excellent location and scarcity. Scarcity always leads to an exacerbated demand with capital gain perspectives higher than average, but with a more marked risk on the more limited volume potential of the targeted market.
d) Update your real estate property
As from the start, you must consider one of the essential parameters for a successful rental: you must offer a property of good quality. Your prospective tenant chooses your apartment at the condition that you offer him a pleasant property at the right price.
Keep in mind that the choice of a place of residence is largely based on emotional and not on rational criteria.
It is therefore necessary that your real estate conveys an emotional added value, a special charm, a freshness, in short, it must be a place where the prospective tenant and his possible family will feel good.
Keep in mind that as an owner, your interest is based on a long and stable tenant/ landlord relationship.
Imposing demanding obligations on your tenant is one thing, offering him a pleasant and motivating place of residence is something else.