Case Study: 1 Bedroom Investment in Marbella/San Pedro

Sarah was looking to invest in real estate in Marbella, Spain. She contacted Marbella House to help her find a suitable property.

After several viewings, Sarah finally found a property she liked, which was priced at €112,000. The taxes and purchasing costs for the property came to €15,200, bringing the total investment to €127,200.

Sarah decided to renovate the property to increase its value and make it more attractive to potential renters. The renovation cost her €26,000, bringing the total investment to €153,200.

After the renovation was complete, Sarah 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 €85, and is occupied 60% 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 Sarah 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: €85 x 365 days x 60% occupancy = €18,637.50

Net Rental Income: Gross Rental Income – Property Management Fee €18,637.50 – (5% x €18,637.50) = €17,705.63

Operating Expenses: We’ll assume that the operating expenses for the property are €5,000 per year. These expenses could include property taxes, utilities, insurance, repairs, and maintenance.

Net Operating Income: Net Rental Income – Operating Expenses €17,705.63 – €5,000 = €12,705.63

Yield: Net Operating Income / Total Investment €12,705.63 / €153,200 = 0.083

Return on Investment (ROI): Yield x 100% 0.083 x 100% = 8.3%

Therefore, Sarah’s property in Marbella has a yield of 8.3% and a return on investment of 8.3%. This means that for every €1 Sarah has invested in the property, she is earning €0.083 in net operating income per year.