Real Estate Investment Project Management: How to Calculate Rental Profitability?

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Real Estate

Sometimes it is very difficult to decide whether to launch an investment in one real estate project over another when the goals set correspond to the same expectations. Yet, many simple financial indices including rental profitability exists in order to comfort the best choice. All the essentials to discover in this file!

Rental rentability: definition

The following exhibition can be very interesting for executives who want to buy real estate. In addition, real estate investing is one of the best investments for entrepreneurs to invest their money.

A movable property may be represented by offices, a building, an apartment or a house belonging to a company or an accounting firm in Belgium. However, regardless of the nature of the equipment, we must ask the possibility of amortization before focusing on the depreciation technique to adopt.

In terms of taxation, the depreciation of the real estate does not necessarily seem a practicable operation. The accounting depreciation is, for the most part, accepted, however it is not always deductible of a tax point of life.

However, like any kind of investment, real estate investing means a decision that should not be made to lightness. In this case, the rental profitability represents a good financial indicator aimed at knowing, in a precise way, the contributions as a percentage of this investment. It also makes it possible to compare the rental profitability of all properties. A rental yield of 3% should for example yield annually 3% and more of the total amount invested in rents.

In addition, the accountants within the accounting firm in Belgium calculate the rental profitability according to the charges due, the rents received and of course the cost price of the real estate.

To determine exactly the rental profitability, many methods can be applied. In all cases, the following calculation steps must be followed :

  • Establishment of the cost price of the furniture
  • Calculation of gross rental profitability
  • Calculation of net rental profitability
  • Calculation of net net rental profitability

Operation of the methods of calculating rental profitability

The first step that constitutes rental profitability is a crucial phase for investment. All the calculations are based on the cost price, which essentially includes the cost of the property, the costs of the purchase and the cost of the work. The expenses associated with the acquisition of the property include intermediation fees, notary fees, etc.

Very useful especially at the beginning of an analysis at an accountant in Ixelles, the gross profitability also marks a relevant index. The annual rent is obtained from the multiplication of the rent by 12 months. In fact, the sum allocated to the rent and used for the calculation set must be included without the rent excluding charges, also called provisions for charges requested from the tenant.

However, the calculation of gross rental profitability does not take into account the expenses related to the improvement of the building, the repair, the maintenance. It also does not take into account the costs granted to the management or to the different taxes imposed on this rental income. This technique is strongly emphasized by many operators in the real estate sector although it remains too summary for a better analysis of rental profitability.

In addition, net rental profitability is an indicator that is very easy to establish. This is a good compromise for a project that does not include too many specificities otherwise the calculation of net-net rental profitability including the owner’s tax becomes an unavoidable solution.

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