23 May Is this house cheap or expensive?
It seems difficult to know if the house we want to buy is adequately priced and it is equally difficult to establish the correct price for the house we want to sell or rent. It seems difficult, but it isn’t really. There is a very simple and logical way to objectively establish the sale or rental prices of a house and this has to do with its profitability.
To answer questions such as: Is this house cheap or expensive? At what price can I rent it? Should I rent it or should I? you can use the PER (Price Earnings Ratio) calculation method. The PER measures the time it takes to recover an investment. According to Bankinter, for real estate investment, the PER in Spain in the year 2016 was 22.7 years, that is 273 months.
The PER is calculated based on the latest gross rental rentability data set by the Bank of Spain, which was 4.4%.
Here are some examples:
If I am going to buy a house for 300,000 €, the gross monthly rent that I should be able to obtain would be 1,098 € (300,000 / 273). If this rent is higher than the average area for that type of home, then the house is expensive.
If I am going to sell a house from which I can obtain a profitability of 2,000 € / month, the sale price should be at least 546,000 € (2,000 x 273). If it isn’t, I’ll be selling below the market price.
If I am paying a rent of € 1,000 / month, the price at which I should buy that house is at most € 273,000, above that price I should continue to rent.
In each case, the values of sale or rental must be corrected according to the specific characteristics of the house, that is, location, conservation state, floor height and expenses associated with the property.
A high PER means that I am buying expensive and it will be more interesting to rent, if the PER is low, then it’s better to buy.
And if you have doubts and you need advice, consult with a Real Estate Personal Shopper. We can help you.