Spaargids.beDo you want to get a return on your savings? So you are looking for something with a decent return. It is easy to calculate the return on a term account. For stocks, it’s a matter of guesswork to correctly estimate the return in advance. As for real estate? Here appearances are deceiving. Spaargids.be Tells why.
Written by Johan van Getty, in collaboration with Spaargids.be
The calculation is not always simple
Anyone who wants to calculate the return on real estate investment can do so easily. You take the rental income on an annual basis and divide it by the investment costs. If you buy a house for €300,000 – including all costs (notary, registration fees, etc.) – and rent it out for €900 per month or €10,800 per year, you will make a total return of 10,800 / 300,000 or 3.6 percent.
This calculation is not wrong. Owners of offices, healthcare properties, student complexes or logistics properties make the same calculation when making a purchase. Then they talk about “total initial return.”
But be careful if you still have to buy the property in question with the intention of renting it out afterwards. If it is a new construction, you must take into account the 21 percent VAT. If it is an existing home, a 12 percent registration fee in Flanders will apply to a home that you will not use as a family home. In the Walloon and Brussels regions, this percentage is 12.50 percent.
Are you looking for a home for yourself or as an investment? Visitors to Spaargids recently paid these interest rates for a mortgage loan.
Lower return than you think
However, in reality, your return is much less than the total return as just calculated. You may have to take financing costs into account. If you have taken out a loan, you must also pay interest fees.
You will also have a number of additional costs. Just think about fire insurance. In Flanders, as a landlord, you have to carry out such a policy since January 1, 2019. It covers your civil liability in the event of damage to the tenant’s contents due to a defect in the home. In Wallonia and Brussels, landlords do not have this obligation, but it is recommended that they also obtain this insurance.
Furthermore, take into account any vacant position. Many renters consider their rental situation temporary while waiting to purchase their own property. To calculate this, you could, for example, calculate just 11 months of rent.
What about taxes?
Consider, among other things, the property tax, known as land charges. You pay a percentage on the cadastral income. The exact amount depends on the municipality in which the property is located.
You must also include rental income on your tax return. If it is a matter of renting to an ordinary person who uses the property only as his residence, it is sufficient to indicate the cadastral income. The tax authorities then automatically increase it by 40 percent and index it. The result of this exercise is then added to your other income and taxed at the highest bracket in which your total income falls.
If you are renting to a company or to a person who also carries out professional activities there, you must declare the actual rental income. In the latter case, you will be taxed on your actual rental income, minus the 40 percent fixed cost deduction. Please note: The tax authorities have already announced that they will monitor this matter more strictly. Now that many people are also working remotely from home and deducting a portion of their rent for tax purposes, you fall into the latter category sooner than you think.
You should also take into account the costs that the owner will have to bear. For example, if the roof is leaking, you should fix it.
Do you want to rent your house? Then avoid these 10 mistakes.
Real estate value development
Finally, the development of your property value is important, and landlords often assume that this was not necessary because property values continued to increase. The latter is no longer automatically the case. Certainly not if your building is not very energy efficient.
Furthermore, if you expect to sell the property within five years of purchasing it, you must also tax any capital gains. This amounts to 16.5 percent. If there are more than five years between the two deals, there is no need to take this into account. Any capital gains are then exempt from tax.
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This article is brought to you by our partner Spaargids.be.
Spaargids.be is an independent comparator of banking products and looks for competitive rates and better interest rates.
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