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Milan, renting a house gives little more than 2%

28 May, Corriere della Sera

Is renting a house a good investment? We’ve tried many times to answer this question using the figures of the market. We’ll try here by starting from a real story: a house in a residential neighbourhood of Milan inherited by somebody that doesn’t intend moving there and that was sold for little more than 363-thousand-euro net of expenses. With all the necessary data about the property (real selling price, land registry data, condominium records), we’ve calculated the returns that it would have provided if the property was rented.

It’s possible to make an estimate assuming a long-term lease. A house of this type is generally leased for 1,200 euro a month. Subtracting the yearly Imu, Tasi and the flat coupon and considering 1,200 set aside to deal with the extraordinary expenses, the property owner will be left with 8,615 euro, which correspond to a 2.4% return concerning the 363 thousand euro initially invested. Not bad, but we have to find a tenant that pays rent regularly. With the regulated rent, the return decrease to 1.8%, despite the lighter taxation, since the property’s parameters dictate a maximum lease of 816 euro a month.

What about the alternative ways of leasing? Let’s exclude DIY short-term rentals like Airbnb: such solutions can provide good returns, but managing check-ins and check-outs is an actual job by itself. In this case, the return will be the remuneration for a business, rather than the dividend for an investment.

Hence, we offer here three different solutions to have the property managed by professionals.

Solutions

We need, however, to make an introduction: the property, in this case, needs to be optimised to contain more bedrooms and furnished according to the manager’s requirements at the owner’s expenses that will be around 20 thousand euro.

The first solution would be an eight-year lease contract with a company that will sublet the property. Despite the reasonable certainty to receive an income, there is a quite disadvantage of fiscal nature: the flat coupon is not applicable, as we’re leasing through a company, and even assuming a monthly rent of 1,400 euro, the performance will drop to 1.4%.

Delegating the management of the property to a third party for a 25% commission (there are offers of this type on the market), even though it will grant double gross income compared to traditional rents, will make returns fall to 1.7% since we’ll have to pay for all the utilities, plus the flat coupon payable on the commission.

Finally, if we assume a contract with a company operating as a broker with a mandate and commissions for the total management of the property equal to 40% gross, the returns drop to 0.4%.

Source: Corriere della Sera

Translator: Cristina Ambrosi