Investing in an apartment is all about the desired return. The annual yield is calculated by dividing the expected rental income (net of annual costs and taxes) by the sale price (inclusive of transfer tax and notary fee). In principle, potential capital gains on the future sale of the property is part of the total return.
Returns on residential real estate are historically low, especially when it comes to inner-city new-build apartments. Returns of 2% to 3% are not uncommon.
You can look for higher returns, but this often comes with higher risks such as steeper renovation costs, delinquent/missed rents or temporary vacancy. Furnished apartments often lead to a slightly higher rental price and thus a higher return.
2. Financial leverage
The use of loaned capital is very useful for real estate investments, especially in times of low interest rates.
If the financing costs are lower than the expected return, the return on equity can be increased. If you can finance 75% of your purchase at an interest rate of 1.5%, a return of 3% quickly becomes 7.5% on equity.
3. Financial analysis
Before you purchase, make a financial analysis of all costs and obligations, and try to get a clear picture of the return before and after financing. CBRE is happy to help with this analysis.
4. Avoid vacancy
Choose an apartment that rents out quickly and easily. Vacancy is the biggest enemy of the real estate investor. Financing and other costs continue, but there is no income. Naturally, this quickly leads to lower than expected returns or even negative returns.
5. Location, location, location
The location of an investment property is crucial, if only to accelerate leasing. The longer vacancy lasts, the lower the annual return. Ask yourself, where do tenants want to live?
Active tenant markets can often be found in the vicinity of service clusters, universities and hospitals. Tenants also want an apartment in the vicinity of a supermarket, public transport and other typical urban facilities.
6. The type of lease is not so important
In Belgium, there are a number of variants of the residential lease depending on the region where the rental property is located. The differences are usually based on duration and notice period. However, tenants are well protected in Belgium and all rental contracts can in principle be cancelled quickly (1 to 3 months).
More information regarding lease agreements in Brussels
More information regarding lease agreements in Flanders
More information regarding lease agreements in Wallonia
Depending on the type of residence, 1-year or 3-year leases are available. As indicated earlier, the priority is to limit vacancy, so the right balance must be found between finding a suitable tenant and the lease term.
7. Get help from a technical expert
There is a lot to consider when buying an apartment, especially if it is to be rented out afterwards. It must be technically safe and in order. When purchasing and renting out, the property must have an energy performance certificate, an electrical inspection, an inspection of the fuel tank and a ‘post-intervention’ file detailing major works. In addition, there are also various European and local guidelines from lifts to alarms and fire escapes.
When purchasing older apartments, it is often wise to consult a technical expert or an architect. This way you know in advance what to expect, and you can make a sound financial analysis.
8. Fewer worries with new construction
That is precisely why new construction is often a good choice for investors with limited technical knowledge. Everything is brand new and does not need to be replaced quickly. All inspections are in order. And the developer and architect will be responsible for the technical and structural properties of the building for 10 years.
9. Outsource administrative and technical management
As a real estate investor (as a secondary occupation) you probably want as little work as possible. Certainly, with several apartments it is necessary to call on external help regarding administration, rental and technical maintenance.
10. Do not forget to register the lease
A rental contract for a home must be made in writing and must be registered by the landlord within two months from the signing of the lease. If you do not register a lease, you run the risk that your tenant can leave without notice.
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