Would you like to know if a property is expensive, cheap or a bargain?
By location, age and condition of the property or other similar properties it is possible to intuit the market price of the property, but there is another way that is just as valid and that will provide us with even more useful information.
It is about finding out the ratios on the purchase and rental price.
On the first hand, we will have the net rental profitability, which is the result of dividing the annual rental value by the sale price.
(EXAMPLE: € 1,000 per year between € 240,000 gives us a gross profitability of 5%)
If we calculate it in reverse, we will obtain the PER (Price Earnings Ratio). This data tells us the number of times that the annual rental income is contained in the sale price.
Bankinter has drawn up some very useful tables that relate the rental price to the price that the property should have, and the data has been calculated in accordance with a gross profitability of 3.7% for the second quarter of 2021, which results in a PER 27 times (to go from one column to another you have to multiply or divide one of the data by 324).
Therefore, the lower the PER is compared to the Spanish average -in this case 27 times in the second quarter of 2021- it will be better to buy, on the other hand, if it is higher, it will be more profitable to live in rent.
4 thoughts on “HOW TO KNOW IF A PROPERTY IS A BARGAIN OR NOT”
Reblogged this on chat mortgage in Spain.
I have nevera used this equation for value a property. Great info
We think it’s one of the best ways to do it if you planning to INVEST