Rental apartments: reality vs. spreadsheet

First, define what yield means

Gross rental income is a distinct figure from net operating profit. Net operating income before financing and income tax is obtained by deducting operating expenses. Cash flow itself is then further altered by debt service, taxes, and one-off capital expenditure on furnishings and fittings.

A yield calculated solely against the purchase price is higher than the return on all actually invested capital. For comparison, use the same denominator: the purchase price plus ancillary acquisition costs, furnishings, and necessary repairs. Personal stays offer lifestyle value, but they simultaneously reduce the supply of nights available to paying guests.

What data to request from the property manager

Request monthly performance records of comparable units, the number of available and booked nights, achieved average daily rates, and itemised costs. Resort-wide average performance is insufficient for an apartment with a different view or fit-out. The data must be anonymised and shared legitimately.

Occupancy must have a clearly defined denominator. If the property manager omits maintenance downtimes or owner stays, they may report a high percentage alongside low annual revenues. Distinguish between public rack rates and the actual average net revenue collected after discounts and refunds.

Illustrative model and its assumptions

The following figures do not reflect any of our projects, nor do they represent an estimate of the local market. They constitute an educational baseline scenario assuming no capital growth, no debt, and before income tax. We assume total invested capital of 320 000 USD. Fixed costs of 8 000 USD per annum include an aggregate operating reserve; for a real unit, these must be itemised.

What the model shows and what it does not

A decline in both nights booked and achieved rates has a significantly greater impact on net profit than on revenue alone, because fixed costs remain unchanged. However, the model does not include an actual tax calculation, financing, or extraordinary repairs. Consequently, the figures cannot be interpreted as a guaranteed net return.

At a rate of 150 USD and assumed variable costs of 25 %, a contribution of 112,50 USD per night remains towards fixed costs. The 8 000 USD in fixed costs is covered by approximately 72 booked nights. This represents the model's operating break-even point before debt service and tax, not the payback period on the purchase price.

Management commission is not the entire operational budget

Review the contract to determine what the commission is calculated on: solely the accommodation rate, the total amount including cleaning fees, or even the guest's total payment including taxes. Also verify whether, alongside the commission, you are charged a fixed inspection fee, platform fees, marketing, or booking costs.

• Condominium: regular service charges, reserve fund, and potential special assessments.
• Electricity, water, internet, insurance, and routine maintenance.
• Air conditioning, swimming pool, garden, and replacement of furnishings.
• Taxes, accounting, banking, and currency conversion fees.
• Vacant months, damages, refunds, and owner stays.

When to reject a forecast

Do not rely on an analysis that conflates revenue with profit, assumes year-round peak pricing without monthly data, or omits management and maintenance costs. Exercise equal caution with any ‘guarantee’ whose guarantor, duration, exclusions, and financial solvency are not contractually substantiated. An independent assessment should stress-test the assumptions first before calculating percentage returns.