Case Study: Investment in a 2-Bedroom Townhouse in Marbella

Johnatan was looking to invest in real estate in Marbella, Spain. He contacted Marbella House, a reputable real estate agency, to help him find a suitable property. After several viewings, Johnatan found a 2-bedroom townhouse he liked, which was priced at €245,000. The taxes and purchasing costs for the property came to €29,000, bringing the total investment to €274,000.

John decided to renovate the property to increase its value and make it more attractive to potential renters. The renovation cost him €48,000, bringing the total investment to €322,000.

After the renovation was complete, Johnata decided to rent the property on a short-term basis, which is a popular choice for tourists in Marbella. The property has an average daily rental rate of €135, and is occupied 65% of the time during the year.

To calculate the yield and return on investment, we will need to calculate the following:

• Gross Rental Income: This is the total rental income that John earns from renting the property in one year.
• Net Rental Income: This is the gross rental income minus the property management fee paid to Marbella House.
• Operating Expenses: These are the expenses related to owning and maintaining the property.
• Net Operating Income: This is the net rental income minus the operating expenses.
• Yield: This is the net operating income divided by the total investment.
• Return on Investment (ROI): This is the yield expressed as a percentage.

Let’s calculate each of these factors:

Gross Rental Income: €135 x 365 days x 65% occupancy = €33,071.25

Net Rental Income: Gross Rental Income – Property Management Fee €33,071.25 – (5% x €33,071.25) = €31,417.69

Operating Expenses: We’ll assume that the operating expenses for the property are €8,000 per year. These expenses could include property taxes, utilities, insurance, repairs, and maintenance.

Net Operating Income: Net Rental Income – Operating Expenses €31,417.69 – €8,000 = €23,417.69

Yield: Net Operating Income / Total Investment €23,417.69 / €322,000 = 0.0727

Return on Investment (ROI): Yield x 100% 0.0727 x 100% = 7.27%

Therefore, Johnatan’s 2-bedroom townhouse in Marbella has a yield of 7.27% and a return on investment of 7.27%. This means that for every €1 John has invested in the property, he is earning €0.0727 in net operating income per year.