Since there are many parameters to be considered when calculating yield when taking a loan, we have prepared a brief explanation about the method of calculating the yield for personal gains. This includes references to expenses regarding the purchase of the property in addition to the current expenses.This also demonstrates how the yield might be “inflated” in a way that does not represent the actual predicted yield.
For this calculation we will use the same data from a previous article, “How to calculate the yield”, where the loan is 45% of the apartment’s value, taken for a period of 10 years with an interest rate of 3.8% and an principle repayment of 2% per year.
The final cost of an apartment with an area of 36 m2 is 57,000 Euros (including brokerage, purchase tax and legal costs in Germany), so the loan will be 25,650 Euro (45%) and the financing set-up costs with a bank in Germany is 2% + VAT from the sum of the loan – i.e. 610 Euros.
From this we find that the total personal capital (the price of the apartment minus the loan plus the financing set-up fees) = 31,960 Euro. This sum will be used to help us calculate the true investment yield.
The rental fee of the apartment is 250 Euro per month. Each month one must deduct from this sum the cost of the management company=30 Euros, the building maintenance fees(apartment building joint account) = 14 Euros, which is calculated by Inspiration Group according to an index of 0.4 Euro per square meter. The calculation is 250-30-14=206 Euro net for rent.
The loan repayment is divided to two. The interest, in this case it is 3.8%, and the fund repayment (the money we borrowed from the bank), here a value of 2% per year/ according to a calculation of a 10 years loan, the repayment will be 124 Euro per month, leaving us with net income of 81 Euro per month. Our yield is therefore 31,960/81*12=3.06%.
It is important to remember that as the cost of the rent in the property becomes higher we can repay the fund at higher rates, which will result in lower interest payments.
In conclusion – in order to reach a realistic calculation of the yield from the personal investment, one must:
- Calculate the property value including the sales tax (5%), brokerage fees (5-7%) and legal costs in Germany (2%) (At Inspiration Group the purchase cost of the property already includes these additional expenses).
- Calculate the regular rent costs, while deducting the management costs and maintenance fees.
- Add various costs involved in getting the loan.
- Understand that calculating the yield without the additional costs of the purchase or calculating the rent without deducting the management costs will create an artificially inflated yield value.
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מעודכן לתאריך: יוני 22, 2013