About to buy my first rental property, want to look at the numbers and comment on them?

Real Estate
1

Hi,

I am close to being able to buy a small house in a EU country, which would be my first real estate investment and a possible place to live in if/when we FIRE.

I ran the numbers and the ROI looks good to me but I wonder if anyone here would like to have a look at them and perhaps comment.

Here I assume to get a mortgage for 80% of the selling price (not the renovations) at 2% (need still to talk to banks, 2% is therefore a guess, but it should not be far from reality, going variable should actually be more 1 to 1.5%)

Price: 60K EUR
Renovation costs: 20K EUR (adding one bedroom and one bathroom)
Total one time costs (notary fee/taxes) are about 1K EUR
Yearly recurring costs (taxes on rent, mortgage interests, 1% maintenance costs, insurance, communal taxes) amount to around 2.6K EUR
Given that the house was now rented out for 450 EUR/month, I am calculating to get 550 EUR/month after renovations and assuming the house to be occupied 10 out of 12 months on average.

This all adds up to:

Downpayment+renovations+one time costs = ~33K EUR
Yearly revenue = ~2.9K EUR (5.5K EUR income - 2.6K yearly costs)
ROI = ~8.8%

The variables which I am mostly unsure about are the renovations costs (I spoke to a local carpenter though) and the actual rent I would be able to charge (and I guess you won’t be able to comment on those), but I wonder if the rest of my calculations look sound to you?

Cheers,
G

2

Do you have to repay the loan within a specific amount of years?

Because the way you calculate your ROI, each time that you repay your loan, your ROI will decrease, meaning that if the repayment is compulsory you will achieve a lower ROI each year that passes.

Further, based on where your real estate is located, you will have to pay real estate income tax and property taxes in the real estate’s country. I see that you account for some taxes, make sure to check whether other taxes are dues.

3

Not sure because I still have to talk to the bank, but I would personally like to (slowly) repay the loan using the revenue from the rent, this way yes, the ROI will diminish but I would be building equity “for free”.

Regarding taxes, I think I have taken all of them into account, the only thing I did not mention above is the additional taxes I would need to pay here in CH (I guess a tiny amount of additional wealth tax plus my tax rate on the rental income).

4

TAX:
Based on my experience, the rental income is likely to be taxed where the real estate is seated. This depends on whether a DTT is in force between the foreign country and Switzerland. In this very case, the tax rate might be higher or lower than your applicable tax rate in Switzerland.

Furthermore, should the income be taxed in the foreign country, it would be accordingly tax exempt in CH or the foreign tax paid would be credited in CH.

FYI - You will have to make an international tax allocation annually on the occasion of the preparation of your tax return

5

It looks good (using I = Price+Renovation costs+One time costs).
If you use the down payment instead the price for calculating I, your ROI looks nice, but you fool yourself. Cf. Mr.RTF’s explanation; plus, the future, unexpected renovations will impact the R… Better for your heart to have a large, conservative I.

6

I could actually buy the place in cash, but that would leave me with almost no cash at a time when I like to have enough on the side, in case some good investment opportunity shows up. In this case I would be looking at a ROI of less than 5%.