Long Term Rental Investment in Lagos

Comparajápt and Marcela Propiedades have teamed up to investigate the profitability of a investment in an

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Long Term Rental Investment in Lagos
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Long Term Rental Investment in Lagos
Comparajá.pt and Marcela Propiedades have teamed up to investigate the profitability of a investment in an apartment for long term rent in the municipality of Lagos, Faro. As in the case of the coastal region of the Algarve in general, the real estate market in the municipality of Lagos has proved to be very positive.
Long Term Rental Investment in Lagos
Comparajá.pt and Marcela Propiedades have teamed up to investigate the profitability of a investment in an apartment for long term rent in the municipality of Lagos, Faro. As in the case of the coastal region of the Algarve in general, the real estate market in the municipality of Lagos has proved to be very positive.
 
As with the coastal region of the Algarve in general, the housing market in the municipality of Lagos has proved to be a good bet for real estate investors.
For this reason, the online platform ComparaJa.pt and the real estate brokerage company Marcela Properties analyzed the real estate market in Lagos for the period between January 2012 and May 2017.
 
 The objective was to find out the profitability of buying an apartment to rent and sell after eight years.
If you are looking for an opportunity to invest, this article is for you.
 
For this study, we used the Casa Sapo database and used as base an apartment with 100 m2 and a purchase price of 235 thousand euros.
 
We have also included some basic annual expenses, such as water, electricity, housing insurance and maintenance and condominium expenses, as well as IMI.
We not only consider these expenses, but also present the rental and sale revenue of the property net of the 28% tax to which they are subject, just as we took into account the value of the IMT to be settled upon the purchase of the house.
 
 
 
 
 
Real Estate Market Trends in Lagos
 
 
We started our observation with the average price per m² in this county, which has been increasing since the end of 2013 and currently stands at € 2391.55, the highest value since then.
This rise represents, in percentage terms, 27.05% since January 2012, when the average price was € 1772.21.
 
 
                                                                                                                     

Graph 1 - Average price per square meter between 2012 and May 2017
 
 

 Also the average sale price of Apartments shows a progression to historical highs within the analyzed period, increasing 24.41% to more than 257 thousand euros.
 
 

Graph 2- Evolution of the average sale price of apartments
 

Finally, and also very interesting is the clear propensity for an increase in the number listed real estate since 2012, being in May of this year 1082 apartments listed for sale.

 

Graph 3 - Number of properties listed in Casa Sapo between January 2012 and April 2017
 
Leaseability
 
Occupancy rates
 
The occupancy rate is the percentage of time that the property will be leased during the year.
The higher the occupancy rate the greater the profitability of the property and as such is one of the most important factors to take into account when you want to rent an apartment.
 
According to data from the barometer Casa Sapo we have calculated the average rental price in the last 5 years, and we have estimated the average price for the next 5 years.
According to our estimates, the average rental price between 2017 and 2024 will be € 784.
 
For this lease amount, we considered several occupancy rates to know the possible annual profitability of this apartment.
The amounts presented are net of the 28% tax on property income.
 
Occupancy Rate Annual Income
25,00% 2 352,00 €
50,00% 4 704,00 €
75,00% 7 056,00 €
100,00% 9 408,00 €
 
 
Table 1- Monthly and annual lease amount for various occupancy rates
 
Annual recipe
 
The annual rent revenue has a large variation according to the occupancy rate of the property, as can be seen in the following table.
 
 
Occupancy Rate Annual Income
25,00% 337,00 €
50,00% 1 797,00 €
75,00% 3 256,00 €
100,00% 4 716,00 €
 
 
Table 2 - Annual rental revenue after expenses and taxes
Taxa de ocup. Receita a 8 anos Liq.
25,00% 2 696,00 €
50,00% 14 376,00 €
75,00% 26 048,00 €
100,00% 37 728,00 €
 
Table 3 - 8-Year Net Lease Revenue
 
 
Expenses with the property
 
Regarding the expenses considered, we calculated an approximate value of IMI for the property, but without considering any annual increases of this rate which is the highest annual expense with the property.
For each different occupancy rate, we also calculated an equivalent percentage of non-fixed expenses with the property.
 
The insurance housing we present is multi-risk with coverage of property, filling, seismic and electric risk in order to better protect the investment.
 
 
Costs T.O. 25% T.O. 50% T.O. 75% T.O. 100%
IMI 893,00 € 893,00 € 893,00 € 893,00 €
Property Insurance 166,52 € 166,52 € 166,52 € 166,52 €
Water - 120 m3/year 74,44 € 148,88 € 223,31 € 297,75 €
Electricity 125,00 € 250,00 € 375,00 € 500,00 €
Maintenance 125,00 € 250,00 € 375,00 € 500,00 €
Condominium 500,00 € 500,00 € 500,00 € 500,00 €
Total: 1 883,96 € 2 208,40 € 2 532,83 € 2 857,27 €
 
 Table 4 - Expenses considered in our study
 
 
Potential for recovery
 
 
Being the potential of valuing the property one of the main factors of decision in a real estate investment, we also calculated some valuation scenarios to present.
In the following table we present the possible gains with various occupancy rates and annual valuations of the property.
 
 
Total earnings in various scenarios
   Total  
  0,50% 1,00% 2,00% 2,50% 4,00%  
25% 3 262,72 € 5 301,24 € 11 144,46 € 14 220,18 € 24 101,12 € T.O. %
50% 14 942,72 € 16 981,24 € 22 824,46 € 25 900,18 € 35 781,12 €
75% 26 614,72 € 28 653,24 € 34 496,46 € 37 572,18 € 47 453,12 €
100% 38 294,72 € 40 333,24 € 46 176,46 € 49 252,18 € 59 133,12 €
 
Table 5 - Total net gains with different occupancy rates and property valuations
 
 
 
 
  Total %  
  0,50% 1,00% 2,00% 2,50% 4,00%  
25% 1,33% 2,16% 4,55% 5,80% 9,83% T.O. %
50% 6,09% 6,93% 9,31% 10,56% 14,59%
75% 10,86% 11,69% 14,07% 15,33% 19,36%
100% 15,62% 16,45% 18,83% 20,09% 24,12%
 
 
Table 6 - Total net gains in% with different occupancy rates and property valuations
 
 
 
 
Conclusion
 
Based on the analysis we have made, and in the creation of several estimates for future profitability, ComparaJa.pt considers that the acquisition of an apartment for placement in the rental market in the municipality of Lagos is, in the long term, a good investment.
 
For the worst case scenario we calculated, an occupancy rate of 25% and an annual valuation of the property of only 0.50% per annum, at the end the investor would get 3 262.72 € profit after tax, a gain of 1, 33% on the initial investment.
 
Already in a positivist prediction of the valuation of the property of 4% per year and with an occupancy rate of 100%, the profitability could reach 24.12%, which represents a net profit of 59 133.12 € on the initial investment.
 
The occupancy rate will be key in the monetization of the property, and as such we recommend that a balance be struck between the rental price and the expected occupancy rate of the investment, with a slightly lower price being preferred to obtain a higher occupancy rate .
 
This same occupancy rate could also be improved by using short-term rental platforms such as Uniplaces and AirBNB.
 
Finally, in a scenario where housing credit is required for the acquisition of the property, you can compare all the offers on the market on the website of Comparajá.pt.
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