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Determine Rental price apartment

Some people ask me how to determine the rental price of a property. Is this something that is guided by superficie or by rental market? And what if there are no similar apartments for rent in the area?

Rental Price unfurnished

To be honest, it is much simpler than that. I take as guide that the annual rental price for an apartment should be at least 4% of purchase price of property. 

So, if an apartment costs 100.000 USD, then the annual rental price should be:

Minimum Annual Rental = 100.000 USD * 4% = 4.000 USD

Minimum Monthly Rental price = 4.000 USD / 12 months = 333.33 USD Per month.

With 4% ROI, another way to calculate is to take the annual rental price and multiply it with 25 to see if comes close to the purchase price of the apartment. You can conclude that after 25 years of renting out an apartment, you should have received the full price.

It also means that the rental price is very dependent to the housing market pricing, which should not be a surprise.



Furnished Rental Price 

If you furnish the apartment with beds, refrigerator, table etc, it would typically take 4 months of rent, or with the above, 1.3% of the purchase price of the house.

Furniture Cost = 1.3% * 100.000 USD = 1.300 USD

If furnished, then the price would be higher as you would have to invest in furniture. However, the cost of furniture does not last 25 years, and typically you would take a 1 years payback period. So the rental price would be:

Monthly Rental Furniture: 1.300 USD / 12 months = 108 USD 

But furnished apartments rent out for shorter periods, so you need to account for more apartment availability to ensure you find renters. Assume that the availability is 20% higher in between rentals, so you have less 20% less income that you want to add to the rental price. So total monthly rental price would be:

Full furnished monthly rental price: 1.300+108 + 20% (1.300+108)  = 1.690 USD.


AIRBNB Price

Now another option is to rent it out through AIRBNB. It is a different segment of people, as these would be more tourists than local people that means higher turnover of renters and shorter periods of rent with periods in between. 

The rental price would be based on higher availability in between rentals, with a typical non-occupancy rate of 30%. But shorter rental periods and higher number of different renters will impact the quality of the apartment and need higher maintenance, so add an 30% additional contingency, so then the price would be:

AIRBNB monthly rental price: 1.300 + 108 + (30%+30%)* (1.300+108)  = 2.252 USD

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