Investing in the real estate market by buying a house to rent can be an attractive strategy for generating passive income in the long run. However, buying an apartment to rent requires careful evaluation of multiple factors to make sure the investment is really worthwhile. In this comprehensive guide we will look at all aspects to consider when you want to buy a house to put it up for rent, from initial costs and profitability to technical and legal requirements.

When it pays to buy house to rent

Buying a property to rent can be a good investment when certain favorable conditions are met:

• Annual gross return is at least 5 percent on the value of the property
• The apartment is located in a high-demand rental area
• Rents in the area are medium to high
• There are poles of interest such as large companies, universities or tourist attractions

According to experts, it is best to avoid investing in cities with low rental demand. Instead, it is better to focus on centers that offer job opportunities, university facilities or tourist attractions, that is, places where there is a constant flow of people looking for rental housing.

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How to choose the right property to buy to rent

When choosing an apartment to buy to rent, it is crucial to consider the needs of the potential target tenant:

• Families with children, young couples, college students or workers have different needs in terms of space and interior layout
• The property must have low operating costs and a good room-to-metric ratio
• Avoid overly large properties that result in higher IMU

Experts recommend buying in municipalities where rents are medium to high. Some particularly attractive areas for investing are:

• Cities with industrial hubs or headquarters of large companies, to attract workers
• Locations with strong tourist appeal, ideal for short-term rentals
• University towns, to rent to out-of-state students

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Costs to consider when buying to rent

In addition to the purchase price of the property, there are several additional costs to consider when buying a house to rent:

Notary fees and taxes on the purchase

Notary fees for the purchase of a second home are higher than for the purchase of the first home. According to estimates, they include:

• Notary fee: about 3000 euros
• Registration tax: 9% of cadastral value (2% for first home) or 200 euros if purchased by companies
• VAT: 10% (22% for luxury properties)
• Land tax: 50 euros if purchased by individuals, 200 euros by businesses
• Mortgage tax: 50 euros if purchased by individuals, 200 euros by impre

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Minimum technical requirements for a property for rent

In order to legally rent a property, it must meet certain basic technical and regulatory requirements:

Standard installations and certifications

It is essential that all systems in the apartment (electrical, plumbing, gas) comply with current regulations and have the relevant certifications attesting to their compliance.

Minimum surface area

According to the 1975 Ministerial Decree, at least 14 square meters of living space per person must be guaranteed.

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How much do you make from a rental house?

The return on a property given for rent can vary widely depending on a number of factors, but on average it is around 5-8% gross per year on the value of the property.

Here are some concrete examples:

• With a monthly rent of 700 euros (8,400 euros per year) for a property worth 100,000 euros, the gross return would be 8.4 percent
• Considering expenses (IMU, maintenance, etc.), the net gain is around 6-7% per year

According to a survey by Idealista, in 2021 the average gross yield of rental homes in Italy was 7.8 percent, up from 7.5 percent in the previous year.

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How to calculate net income from a rental

To determine the actual net income from renting a property, it is necessary to subtract all expenses and taxes from the gross rent. Here is a practical example of a calculation based on information provided by RentYourNest:

1. Calculation of gross income

Assume a monthly rent of 600 euros:

Gross annual income = 600 euros x 12 months = 7,200 euros

2. Application of the flat deduction

In Italy, a flat deduction of 5 percent can be applied to gross income:

Taxable income = 7,200 euros - (5% of 7,200) = 6,840 euros

3. Tax calculation

Assuming an IRPEF rate of 23 percent:

Taxes = 6,840 euros x 23% = 1,570.20 euros

4. Calculation of net gain

Net earnings = Taxable income - TaxesNet earnings = €6,840 - €1,570.20 = €5,269.80

Thus, by renting a property at 600 euros per month, the annual net income would be about 5,269.80 euros, or 439.15 euros per month.

For a detailed assessment of investment potential, consult Joivy Invest articles or contact an advisor directly.

It is important to note that this calculation does not take into account other expenses such as registration taxes, condo fees, maintenance and insurance, which can significantly affect the final gain. For a more detailed analysis of taxation on rental income, see this comprehensive guide.

In conclusion, buying a house to rent can be an attractive investment opportunity if all aspects involved are carefully considered. Thorough analysis of the market, judicious choice of property and shrewd management can turn buying an apartment to rent into a stable and profitable source of income in the long run.