Real estate investment calculator

Are you looking for a tool to help you calculate the profitability of your real estate investment? If so, you have to try the calculator that we have designed at Muppy. Use it to take the first step towards monetizing your properties!

Real estate profitability is the percentage value that measures the economic performance of a real estate investment. That is, it tells you how much money you will earn by renting a home. The average in Spain ranges between 4 and 7%.

There are two types of real estate profitability:

• Gross profitability: shows the profits generated by a real estate investment without taking into account the expenses associated with it (e.g. taxes). It gives us an approximate idea of the potential yield of the property.
• Net profitability: Shows how much income a real estate investment generates after deducting the costs associated with it. It offers us a real estimate of the economic performance of a property, since it considers all the variables.

The calculation of real estate profitability should precede any real estate investment. Thanks to it we can accurately and realistically evaluate the performance of our potential investments. In this way, investors have an objective way of identifying safe and advantageous investments, discarding those that are not.

Basic elements to calculate the profitability of a real estate investment

Calculating the profitability of a real estate investment is a complex process that handles multiple elements. Enter these data into our calculator to find out how profitable the home you want to invest in is. Remember that the more accurate the values entered, the more realistic the result will be.

Purchase price of the property

Before making a home profitable by renting, you need to acquire its property by signing a sales contract. Other expenses related to the acquisition will be added to this value.

The profitability of a property is inversely proportional to the purchase price. Opting for prices that are especially competitive or below market prices makes it easier for us to generate profits.

Purchase and sale expenses

The purchase of a property goes beyond paying its acquisition price. There are a number of expenses inextricably linked to these contracts. According to the General Council of Notaries, these costs represent 10-15% of the price of the house.

• Notary expenses.
• Registration fees.
• Management and real estate fees.
• Taxes: stamp duty + VAT (new home) or ITP (second hand).

These costs must be added to the purchase price of the house to calculate the profitability of our investment. Obviously, the lower they are, the higher potential return we will get for our investment.

Maintenance costs

This amount includes a series of periodic costs associated with the ownership of a home. Its timely management is essential in order to optimize its financial performance.

• Community of owners.
• Supplies (electricity, water, gas, etc.).
• Insurance (such as home and rental protection).
• Repairs.

Reform costs

The real estate market is tremendously competitive. Therefore, only the most attractive homes manage to unleash their full potential in terms of profitability. That's where the strategy known as home staging comes into play. Did you know that things like decorating and furnishing your property can revalue it by 10-15%?

Financing (mortgage)

For every 10 people who buy a house in Spain, 6 finance their acquisition through a mortgage. The monthly mortgage loan installment is part of the expenses to be deducted to calculate the net return on your real estate investment.

Recurring taxes

The ownership of a home carries with it the obligation to pay the Real Estate Tax (IBI in Spanish). This municipal tax must be paid every year and ranges from 0.4% to 1.1% of the cadastral value of the property.

Rental income

This income comes from the rent that the tenant pays you monthly for renting the house. Of all the elements necessary to calculate the profitability of real estate investment, this is the one that reflects the asset of the investment, while the others constitute the liability.

Calculation formulas

If you are wondering how to calculate the profitability of a real estate investment with our calculator, you should take into account a series of calculation formulas. By this we mean both gross and net income as well as certain tax issues.

Gross profitability: methodology and example

The gross profitability only provides us with an initial estimate, since it does not take into account the expenses that the investment entails. To calculate it, we have to divide the annual rent that the tenants pay us by the purchase price of the house and multiply the result by 100.

• Formula: Rental income per year / Purchase price of the property x 100
• Example: €14,388 (€1,199 x 12) / €200,000 x 100 = 7.19%

Net profitability: methodology and example

The net profitability brings us closer to the real return on our real estate investment with greater precision, because it considers both the assets and the liabilities. To calculate it, we will subtract the annual expenses from the rental income, dividing this value by the purchase price and multiplying the resulting figure by 100.

• Formula: [(Annual income - Annual expenses) / Purchase price] x 100
• Example: €14,388 - €1,900 / 200,000 x 100 = 6.24%

Tax considerations

The calculation of the profitability of a real estate investment would not be complete without taking into account its taxation. As a landlord, you must declare the rental income in the personal income tax as income from real estate capital.

• The rent is only taxed for the net profit (income - expenses).
• From January 1, 2024, you can benefit from various reductions (of 90, 70, 60 or 50%).
• Some of the expenses related to the rent are deductible (mortgage loan interest, IBI, maintenance, etc.).
• In the case of renting the house for tourist use or short stay, you will have to register with the IAE and pay 10% VAT.

Example tables

Do you remember the example we gave you to explain how net profitability is calculated? The amount resulting from subtracting income and expenses (€14,388 - € 1,900) would be € 12,488, which places it in the second income TAX bracket. Therefore, the applicable rate would be 24%, that is, €2,997. This amount could be reduced by 70% if the requirements of art. 23.2b Law 35/2006, so you only had to pay the Treasury € 899.

Optimization strategies

Getting profitable real estate investments is not just a matter of crunching numbers with a calculator. There are a number of techniques capable of enhancing the performance of your rental. That's where the comprehensive management services we offer at Muppy come into play. We take care of everything so that you can revalue your property by 20% in just 1 year.

Negotiation of the purchase price

The vast majority of profitable real estate investments are characterized by having been acquired at below-market prices. Strategies such as thoroughly comparing the available options and effectively negotiating the price multiply your chances of success when left in the hands of specialists. Can you think of a better way to start with an advantage over other investors?

Optimization of the rental price

Setting the rent that you want to charge for the rent is a very delicate step within your investment strategy. It should be high enough to be profitable, but not so high as to scare off potential interested parties.

Once again, the experience of the real estate specialist will be your best ally when it comes to adjusting prices that give high performance without reducing the competitiveness of the property.

Choice of rental model

Long-term, temporary, tourist, by rooms... each type of rental has its pros and cons. The choice of one or the other modality will depend on what your needs are. Count on Muppy so that we can adapt the range of options available to your investor profile. After all, personalized real estate investment helps you invest with complete peace of mind.

Selection of tenants

When we start calculating the profitability of the real estate investment, we cannot take into consideration how the future tenants of the house will be. However, they are a crucial piece within your investment project.

From Muppy, we put all our experience at your service to make sure that only the best tenants access your home. Their solvency and good behavior is the greatest guarantee that your investment remains profitable and in optimal conditions.

Expense management

To get profitable real estate investments, we need to skillfully manage expenses. After all, the smaller these are, the greater profitability our property will provide us.

Unlike private investors, real estate specialists have ways to reduce many of these costs (insurance, supplies, maintenance, etc.). Not for nothing, our pre-eminent position allows us to negotiate big to always get the best terms.

Conclusions and recommendations

Key points to remember

• The calculation of the real estate profitability is what allows you to know how much financial return the purchase of a home will provide you to put it up for rent.
• What data do you need to enter to calculate the profitability of a real estate investment? They are the liability - the purchase price of the property and the expenses (purchase, maintenance, renovation, financing and taxes) - and the asset (income you will get for renting).
• To calculate the profitability of real estate investment, it is necessary to distinguish between gross and net returns. Compared to the speed of the first, the second stands out for its accuracy and objectivity.
• Once the net return on your real estate investment has been calculated, you must take into account its tax assessment and the possible applicable reductions.
• The secret to multiplying the profitability of your real estate investment is to put yourself in the hands of specialists in the sector who will provide you with an all-in-one service. At Muppy we take care of the entire investment process, advising you on which property is the right one for you, up to selecting the tenants.

Useful tools

Not to throw flowers at us, but our online calculator gives you the opportunity you need to accurately calculate the profitability of your real estate investment. Thanks to it, you will quickly and easily obtain reliable information with which you can start planning your investment projects. Don't forget to complete your results with the tax rate and income TAX reductions!

Final tips

Right now, you're that much closer to turning a home into your next source of passive income. At Muppy we put your properties to work for you. Start calculating the profitability of your real estate investment with our calculator and make your financial freedom a reality.