patrick.net

Reduce the management fees, reduce the cleaning fees and increase the rental times? It seems that you also get usage out of this property?

Have you listed the place on many rental sites? You could probably increase the rental income. The 1.5% could change drastically at that point. You didn't mention taxes, upkeep or HOA dues either.

sell it and rent it back when you visit

Nomograph says

I would sell the apartment and send all the proceeds to Greece.

you are so funny

pkennedy says

Reduce the management fees, reduce the cleaning fees and increase the rental times? It seems that you also get usage out of this property?
Have you listed the place on many rental sites? You could probably increase the rental income. The 1.5% could change drastically at that point. You didn’t mention taxes, upkeep or HOA dues either.

Even when I succeed in optimizing all those things and would succeed in doubling net rental income to €10.000, it would still be only 3% yield. Patrick says this is still too low, and I agree.

At that point if someone would take ik off my hands for €350.000, he would still pay 35 times the yearly income. That is still way too much if you ask me.

As I understand from Patrick a good buy is when you have 10% net rental income, meaning you can earn your investment back in 10 years. That would mean that the price of the appartment should fall to €50.000!!! Even when I would succeed in doubling the net rental income to €10.000 the fair value of the property would still only be €100.000, maximum €200.000.

Serpentor says

sell it and rent it back when you visit

I like your idea. Simple, profitable and effective. Thanks!

I will tell you to hold if you use a $ (dollar), but you used a € (Euro) which drops every day.

Are there similar properties in that area with better rent-to-price ratios? If you could get €350k for this place, and then buy something that's much cheaper but rents for the same amount, you'd have the same income, but would pocket the difference.

What is a normal rent-to-price ratio in your area?

Two ways to look at this home:
1. purely financial: How are property values in your immediate area? If they are at (or near) a peak (and trending down), I'd sell. You can buy back in at a later time at a lower price. This assumes you aren't in need of the money and that you're in a bubble or just past the high point. The way to tell? What are the comparable units selling for (not asking prices, selling prices)?
2. emotional: If use of the unit on a regular basis is very important - and very similar units are not easily found and rentable, I'd keep it.

"However, I do have some emotional bond with the property. I’ve been going there for holidays since I was young and do meet my family there as they also each have an appartment in the same building."

You have to distance yourself from this thinking. Unless it's the house you live in and raise a family in and enjoy the location, etc., this is just a house/condo/apartment. You have to look at an investment property as that, an investment. It's not your home anymore, it's just a house/condo/apartment. It's just like stocks and other investments.......don't fall in love with them, you have to take the emotions out of it.

Patrick - based on the responses above, you can close your web site. Most of the answers were rational and directionally correct. Everyone reading your site seems to know or have learned...and those who haven't been following - well, we need people to sell to...! Mission accomplished (non-Bush interpretation)!

Well there are some other things to consider -- Patricks numbers are great for the US, and in specific, large cities/surrounding areas.

How often are you renting this unit out? Is this a few months a year, or year round? Are you sure you're getting the best rent possible for it? If you're booked all the time, then your only additional income could come from rent increases, but if you're empty for much of the time you can work that angle as well.

How often are you using it yourself? If you had to "rent" during these times, how much would that cost you?

Has the land gone crazy in appreciation in the last decade, or are the prices reasonable?

you may consider that there may be more tourism if the Euro drops, but then again you may also loose that money again in the exchange rate, what about just renting out the property year round? and then just get a timeshare somewhere nearby? also from my limited knowledge of euro real estate, land is alot more scarce, so the property is less likely to loose alot of value (in euros), but it may be a bad time to sell based purely on exchange rates, maybe better to wait a few years for the dollar to fall, which will happen sooner or later

Michinaga says

Are there similar properties in that area with better rent-to-price ratios?

There is another appartement at seaside recently sold for €650.000. However it's more modern but also net rental income is only €10.000 per year! So this is also only 1,5%

Half of the year those seaside appartments are abondened (in winter). But during 3 months summer everybody wants to be there and rents are high.

The reason why rent to price ratio is so low is that rich people mostly buy these seaside appartments as private resort. They don't rent it out. Nor would rich people come and rent. So prices are created by those rich people there desire for luxury and status. They don't even make the calculation, how much would I make if rented out? As they don't buy it for that.

I could sell and reinvest the money into students condos inland and earn 5% net. So rationally there is no reason to keep this property.

mailingreply says

Two ways to look at this home:

1. purely financial: How are property values in your immediate area? If they are at (or near) a peak (and trending down), I’d sell. This assumes that you’re in a bubble or just past the high point. The way to tell? What are the comparable units selling for (not asking prices, selling prices)?

Comparable units are asking 500-550k and selling for €450.000 but that was a year ago. Prices are not in freefall yet but I think that will come. I think we are just past the high point. There certainly are trending down and considerably more units are for sale today compared to a year ago. And the amount of transactions is 3 times lower than a year ago, or 10 years ago!

I think the amount of transactions is very important as it collapses before prices tumble.

rob918 says

You have to distance yourself from this thinking. You have to look at an investment property as that, an investment. It’s not your home anymore, it’s just a house/condo/apartment. It’s just like stocks and other investments…….don’t fall in love with them, you have to take the emotions out of it.

@rob918

Agreed! Although I love the place I would not want to live there as it is way too valuable. I can live in a place of €100.000, and that would still be a waste of capital. I would rent the place. But living in a seaside appartment of €450.000 is crazy. I would rather sell it and rent it back for €10.000 a year and invest the money more wisely.

It's hard to put your emotions aside. Only the $$$ signs can convince me. I just don't want to waste that capital. My father build the place just after world war 2. Since then it has continuously gone up in purchasing power. I am afraid that the next 20 years it will continuously lose purchasing power. I just don't want to risk that.

Thanks for your feedback

pkennedy says

Has the land gone crazy in appreciation in the last decade, or are the prices reasonable?

The land doubled in price the last 10 years, just as during the 90's, and the 80's. Also during the '70's and '60's it went up nicely. Faster than inflation and on top of that there was net rental income. I think it has been a wonderfull investment. Even better than stocks, bonds, or gold the last 30 years. But I find it very hard to believe that while USA RE corrected 30% already, we in the Netherlands would not. I think we just lag a few years. And I believe the correction even in the USA will be -50% total and will take another 5-10 years.

Unless we get inflation or maybe hyperinflation due to printing and stimulus, then prices can start to go up starting tomorrow. But then still it will lose a lot of value versus gold the coming 10 years.

surfingerman says

you may consider that there may be more tourism if the Euro drops, but then again you may also loose that money again in the exchange rate, what about just renting out the property year round? and then just get a timeshare somewhere nearby? also from my limited knowledge of euro real estate, land is alot more scarce, so the property is less likely to loose alot of value (in euros), but it may be a bad time to sell based purely on exchange rates, maybe better to wait a few years for the dollar to fall, which will happen sooner or later

Sure, I could optimise rental income but even when I double I would only have 3%, which is still very bad. If we get a worse crisis tourism inland might go up but than price of RE will probably fall too.

The only thing that bothers me is discovering that real estate during the Argentinian crises in 2001 did not drop in value (US$). At least not the RE in good neighbourhoods.

But I just don't want to take the risk to lose half of the value and want to use part of the money for safer more balanced investments and part of the money for some riskier investments with higher chances of a big score.

It seems that for 450,000, with few rentals, that you should be able to get more than 10,000 rent? Especially if this is short term rentals.

But if prices are starting to come down, it might be worth getting rid of it now.