How to calculate the yield on a rental flat in Madrid
Find out how to calculate the yield on your rental flat in Madrid, what expenses to take into account and how to protect that yield against unforeseen events.
Before putting a property up for rent, one of the most important steps is calculating its yield. Knowing this figure allows you to compare the property investment with other alternatives and make informed decisions about the rental price, any necessary refurbishments or the right time to bring the flat onto the market.
What rental yield is
The yield on a rental flat is the relationship between the income generated by the property and the capital invested in it. There are different ways to calculate it, the most common being gross yield and net yield.
Gross yield
Gross yield is calculated by dividing the annual rental income by the purchase price (or the current market value) of the property, and multiplying the result by one hundred. It is a simple calculation that gives you a quick idea, although it does not take into account the expenses associated with the property.
Net yield
Net yield is a more accurate calculation, as it subtracts from the annual rental income the expenses involved in maintaining the property: community fees, IBI, insurance, possible maintenance costs, rental management and periods when the property may be vacant. This figure offers a more realistic picture of what the owner actually receives each year in relation to their investment.
Factors affecting yield in Madrid
Madrid is a city with a great diversity of neighbourhoods and property types, so yield can vary a lot from one area to another. Some influencing factors are:
- The location and neighbourhood, as these determine both the purchase price and the achievable rental price.
- The condition of the property: a refurbished flat is usually rented out faster and at a better price.
- Demand in the area: proximity to transport, universities, office areas or services.
- Management and maintenance costs, as well as whether or not there are vacant periods between tenants.
How to protect yield against unforeseen events
Calculating yield is only part of the process. Just as important is protecting it against unforeseen events that could reduce it, such as non-payment of rent, damage to the property or unexpected costs arising from contract management. That is why at UBICASA we offer a rent non-payment guarantee that covers the rent from the first day of the contract until its end, as well as utilities, locksmith costs and damage to the property up to 3.500 €, at no cost to the owner. You can find all the details in our article about what rental non-payment insurance covers.
Preparing the property to maximise yield
A well-presented property is rented out sooner and reduces void periods, which directly improves annual yield. Small details such as a thorough clean, minor repairs or professional photographs make all the difference. We explain how to do it in our article about how to prepare a flat to rent it out quickly and safely.
Choosing the right type of contract
The type of rental also affects the yield and the management of the property. A long-term rental, intended for a stable contractual relationship, is not the same as a seasonal rental, aimed at short stays. Each option has its own advantages depending on the profile of the owner and the property. You can read more about the differences in our article about long-term or seasonal rental.
Conclusion
Calculating the yield on your rental flat in Madrid correctly allows you to make better decisions about the price, the type of contract and the improvements needed in the property. At UBICASA we help you maximise that yield with professional rental management and a non-payment guarantee that protects your investment from day one. If you want to know how much your property could generate, contact our team and we will advise you without obligation.