Buying a house to rent out? Here are 5 success factors according to our rental expert
Buying a house to rent out is an increasingly common way to smartly utilize your own capital and earn extra money. But like all investments, it comes with risks. The rental yield can vary significantly depending on the situation. Are you planning to buy a house for renting out? These five success factors can help you minimize risks and maximize returns on your real estate investment!
1. Buy the right house to rent out
Not all houses are equally suitable for renting. Three aspects are crucial for a property's rental potential and profitability: the type of property, its location, and its condition.
Which Type of House to Buy for Renting Out?
Two-room apartments of about 80 square meters are known to be the best type of property to rent out. They are relatively inexpensive and highly sought after by many tenants. A house is often more expensive, both in purchase and maintenance, and yields relatively lower rental income. Besides the type, it’s also important to consider the energy label of the property: the better the label, the more points the property gets. This is especially relevant if you want to rent in the private sector, as the property must score at least 146 points (and from 2024, even 187 points). The type of house you choose depends closely on the location and target audience you have in mind.
Where to buy a house to rent out?
A well-located property, such as one near a city center, is easy to rent out and yields maximum rental income. A house in a less popular but potentially up-and-coming neighborhood may initially yield less but could significantly increase in value over time.
Consider in advance which type of tenants you prefer. Young couples and young professionals are more likely to choose an apartment in the city or other trendy areas. They are more willing to pay higher rent if the property has many amenities nearby. Families and retirees with stable incomes often prefer quieter neighborhoods where they can easily get around by car.
New construction or existing property for renting out?
On paper, new construction or a recently built property is often the best idea when buying a house to rent out. You don't need to renovate it, it has a good energy label, tenants can move in immediately, and it requires little maintenance in the coming years. This saves you both money and time! And for tenants, a well-insulated house means lower living costs. However, the purchase price of a new build is also higher than that of an existing property. With an existing property, you can start renting out with a smaller investment. Maintenance costs, however, will slightly reduce your yield in the long run.
2. Accurately calculate the yield
Buying a house to rent out is a dream for many, but often the potential yield is oversimplified. It's essential to calculate as accurately as possible what you can earn with your real estate investment. This is useful not only when comparing investments but also for your financial planning in general. Knowing exactly how much yield a house provides allows you to make better decisions about where to invest your money and when to potentially sell your investment.
What does a rental property yield?
Firstly, a rented property provides you with monthly rental income. If you buy a house to rent out in the social sector, there is a maximum rent. The advantage of a social rental property is that the tenant is entitled to housing allowance. This is not the case in the private sector. In the private sector, you can set the rent yourself. Whether you can rent the property in the social or private sector depends on the number of points the property is assigned. This score is based on factors such as the size of the property, amenities, and the energy label. Currently, your property needs 146 points to be rented out in the private sector, but in 2024 this will increase to 187 points. How these points will be distributed is not yet known at the time of writing.
In addition to monthly rental income, most houses also increase in value over the long term. For example, a house in 2000 was worth an average of €172,100, and in 2021, it was worth €386,700 – an increase of nearly 125%. If you invest for the long term, there is a good chance that the increased value will also provide you with a yield.
What are the costs of a rental property?
Purchase price
Purchase costs
Mortgage costs
Renovation costs
Maintenance costs
Insurance
When buying a house to rent out, aim for a yield of four percent, excluding the property's value development. Have a professional help you calculate the yield of the house you have in mind
3. Be aware of (Tax) regulations
What mortgage for a rental property?
Buying a house to rent out is not the same as buying a house for personal use. For starters, you cannot take out a 'normal' mortgage for a rental property. Lenders consider investments to be riskier. Therefore, there are special real estate mortgages. In many cases, only 70 to 80 percent of the purchase price is financed. A real estate mortgage also has a higher interest rate.
How much tax on a rental property?
The tax authorities consider a rental property as an investment. You pay wealth tax in box 3 on income from investments. The tax rules for real estate investors are changing in 2023. Read more about this in our blog post on five changes to the tax system.
4. Invest for the long term
To at least break even, you need to recoup the costs incurred and sell the property for at least the same price again. This can take quite a while. Therefore, avoid buying a house to rent out with money you will need in the near future. This gives you time to build up more yield and carefully wait for the perfect moment in the housing market to potentially sell the property again.
Before buying a house to rent out, also determine what you will do with the monthly rental income. How much will you immediately pocket? How much will you set aside for maintenance and renovation? And how much will you possibly use to make extra mortgage repayments?
5. Take enough time for the rental process
Many beginning real estate investors underestimate the amount of time it takes to buy a house to rent out. Besides the purchase, renting out itself can also take up a lot of your time. Consider:
Choosing reliable tenants with whom you can maintain pleasant contact
Drafting a neat rental contract that includes all the rights and obligations of both landlord and tenant
Outsourcing or handling repairs yourself
Keeping track of financial planning and administration related to renting
Buying a house to rent out with peace of mind
Buying a house to rent out is an exciting project. Many both beginner and experienced real estate investors choose to seek advice from experienced rental experts during this process. It's also very common to outsource property management. Koops Makelaardij is the right place for this. We help (aspiring) real estate investors buy the perfect house to rent out. Among our screened tenants, we also find the right renters for your property. Want further peace of mind? Opt for support with financial and/or technical management.
Let Koops Makelaardij guide you from A to Z in buying a house for renting out! Read all about Koops Real Estate Management or make an appointment for a free consultation today.
