Costs of an Investment Property | Rental Yield

Costs of an Investment Property: How to Calculate the Real Rental Yield

The property price is just the start. If you're buying a property as an investment, you also need to factor in the costs of owning and renting it out.

The good news is that even after accounting for them, a property investment can still be very attractive. The key is simply to work with realistic numbers and not rely solely on the gross yield quoted in the listing.

What are the costs of an investment property?

When buying a property as an investment, you need to factor in costs that arise not just at the time of purchase, but throughout ownership and rental.

The most common include:

• property tax
• management and service fees
• insurance
• rental income tax
• maintenance and repairs
• vacancy periods
• costs tied to your own use of the property

These costs naturally reduce the final yield. That doesn't mean the investment stops making sense, though. For a well-chosen property, the net yield can still be very attractive even after accounting for them.

1. Annual property tax

Property tax varies by country, depending on location, property type, and value.

In some of the destinations where we operate, the ongoing costs of owning a property are lower than in Czechia.

2. Property management and service fees

If you're buying a property as an investment and don't want to handle its day-to-day operation yourself, you can use professional property management.

A management company can typically handle things like:

• communication with tenants
• check-in and check-out
• cleaning
• property maintenance
• handling routine repairs
• managing short-term rentals
• marketing and filling the property

These services are usually paid for as a fixed fee or a percentage of rental income.

3. Insurance

Property insurance is another cost often overlooked when calculating yield.

The price of insurance depends mainly on the property type, its value, and location.

4. Rental income tax

Rental yield doesn't automatically mean net profit.

Rental income may be subject to tax in the country where the property is located. The specific regime varies by country, type of rental, and other circumstances.

5. Maintenance and repair costs

Even a new property doesn't mean absolutely zero operating costs. The advantage of new development projects, though, is that you can generally expect significantly lower spending on major repairs and maintenance in the first years of ownership.

For older properties, on the other hand, you may need to budget for renovation costs, replacing systems or appliances, or other repairs.

The advantage of a new build: With the right project, you can expect lower costs for major repairs in the first years of the investment.

6. Vacancy

No property is rented out 365 days a year.

When calculating yield, it's therefore worth building in some margin for periods when the property has no tenant or is waiting for its next guest.

7. Costs of your own use

If you want to use the property yourself for part of the year, you also need to factor in that it won't generate rental income during that time.

On the other hand, the option of personal recreation is itself one of the advantages of investment properties in attractive foreign destinations.

Sample calculation: a €100,000 property

For a clearer picture, here's a simple example for a property worth €100,000.

Let's assume the property generates gross rental income of €8,000 a year.

Sample costs:

• Management and service: €2,400
• Property tax: €50
• Insurance: €100
• Total: €2,550

Result:

€8,000 gross income
− €2,550 costs listed above
= €5,450

That works out to a 5.45% annual yield on the €100,000 purchase price, before any taxation of rental income and other individual costs.

Gross yield isn't net yield. But even after accounting for typical costs, the yield doesn't necessarily fall to a level that makes the investment uninteresting.

How to calculate the real rental yield

You can roughly calculate the gross yield like this:

Annual rental income ÷ property purchase price × 100

For a more realistic picture, though, you need to subtract the costs of ownership and rental.

That's exactly why, when evaluating an investment, we look not just at how much a property can earn, but also how much it costs to run.

Even after accounting for costs, the investment can still be very attractive

The costs of owning a property are a natural part of any real estate investment. The important thing is to know about them in advance and factor them into your calculation.

They shouldn't obscure the main point, though: a well-chosen investment property can still offer a very attractive yield even after these costs are factored in.

On top of that, an investor can gain other benefits too — for example, long-term appreciation of the property, personal use of an attractive destination, or diversifying assets outside the Czech market.

Despite all these pitfalls, investing in a foreign property can therefore still be a very attractive part of an investment portfolio. The important thing is simply to know all the costs in advance and work with realistic numbers.

Not sure what the real yield on a specific property could be?

Send us the listing you're considering. We'll calculate not just the expected rental yield, but also the costs of management, service, insurance, and other operating expenses.

That gives you a more realistic picture of how much the investment can actually earn you.

Want to calculate the yield on a specific property? Contact us →