How do you evaluate a Real Estate deal? I’m looking to possibly make a RE deal in my home country soon, I know roughly what would be a good deal within other RE deals, but how do you compare, mathematically to let’s say investing in ETFs etc?

What I mean is, let’s take an example such as:

(The values are merely indicative, not representative of Switzerland nor any particular deal, rounded for ease of analysis. Taken from similar deals in Euro but to keep this generic no currency is mentioned).

Purchase price = RE value = 500k

Deposit = 200k

Purchasing costs = 50k (Taxes and other permits etc)

Total Spent = 200 + 50k = 250k

Loan = 500k - 200k = 300k

Mortgate rate = 5%

Rent = 2k

Tax on Rent = 25% (Not using Swiss module for simplicity)

Net Rent = 1.5k

RE valuation = 2%/p.a.

This will probably not add up with the above but let’s assume that the mortgage % and duration is set in such a way that we have a monthly payment of 2k where 1k is for interest and 0.5k is for the principal. Meaning that one has out to pay out of pocket another 500 per month, the rest coming from the net rent.

How do you go from here in computing the effective % of this investment over 1 year?

For example with 250k invested one would have generated over 1 year 0.5k * 12 = 6k (the rest went to pay interest). I guess one should also add the 2%*200k which is another 4k, so 10k total. Over the year one would invest 500/month so at the end that’s 6k invested, total = 256k.

10k/256k ~= 4% (For now let’s ignore that each payment is monthly so that will affect the yearly return for each of them, which is also true for the valuation of the property itself).

Obviously this doesn’t really mean much as the numbers are not real but what am I missing? Is there a better formula(s)?