Real Estate Return Calculation


Simple sole
You can make a very comprehensive real estate return calculation. Where you will calculate until the distant years what it will deliver to you and where you take into account all aspects, such as value increase of the property, rent increase, risk of vacancy, etcetera. But as you now know: I am a simple soul. So I kept it simple and worked my gut feeling alongside my calculation.

In any case, that is something I always do and have always done, with every form of business. Follow gut feeling. Because they would like to see numerical substantiations incorporate, I sometimes looked for some relevant data, but mostly I started from my own common sense and vision. Usually worked out damn well. So hopefully my real estate investment.

If you want to make a really good calculation, you must take into account a number of important variables.

We start with the purchase: here it is important to know what the purchase price is, what you will spend on odd jobs/refurbishing/renovations, what the transfer tax you pay and what you have lost to the notary and possibly to the buying broker and financial advice.

Then you will also have monthly costs, such as VvE and management (rental agent). In addition, I reserve an amount for any maintenance. Added together I lost € 204 a month.

We go to the financing part. In this article, I already wrote about financing for a second mortgage. That means I put in my own money. The bank has financed the purchase price for € 160k. That means that I myself put € 224,760 – € 160,000 = € 64,760 of my own money on this. I make the return calculation on equity, so I will start calculating with that € 64k.

I pay a 3.05% interest and repayment for this financing. I have taken out an annuity mortgage for this property.

The calculation
I pay the lender € 691 in interest each month and to pay off my mortgage. In addition, I have € 204 in costs and reservations. Added together this is € 895 per month. However, part of this amount is also repayment, so capital accumulation. I redeem € 298 and therefore build up capital.

But you have paid close attention, so you understand that I am adding the € 298 repayment to the € 400 to calculate my return. Because wealth creation, making my money more money in the long term, that is the trick guys.

You just read that I myself have invested € 64,760 in this apartment, that is my equity. So my return on equity is: (€ 698 x 10 months) / € 64,760 x 100 = 10.7% return on equity!

Not included
If you want to do a really good return calculation, you must extend it as long as the investment is there. Then you also take into account the value increase of the property, taxes and an increase in the rent. I did not do this for the purchase now, but if I use a smart calculation tool, I assume both an average increase in value of the property per year and an average rent increase of 0.75% per year, taking into account (look at me here) chic typing) occasional vacancy and occasionally a big disappointment, then I expect that in 30 years my € 64k equity has grown to € 368k equity.

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