A flat to let – is it a good investment idea?

In times of widespread inflation and an unstable market, many people look for safe ways to put their cash to work. One very popular method, known for years, is buying a flat and letting it out. Is it worth it? After how many years can the investment pay for itself?

Investing in property – why is it worth it?

Buying a property and letting it out is regarded as one of the safest ways to invest capital. Such an investment is secure and free of the risks typical of other ways of growing cash, for example playing the stock market or trading currencies.

Flats to let enjoy steady interest, especially in larger cities. The risk that a property will not find a tenant is therefore relatively small. The most popular properties are in voivodeship capitals and in places that are attractive to tourists.

You can let a flat located even several hundred kilometres from where you live – this is usually not a problem. Managing it does not require much involvement. You can also entrust the care of the property to an estate agency. In that case the passive income from letting requires practically no effort on your part.

The agency's staff look for tenants, make sure payments are made on time and respond when needed – for example, when something in the property breaks down.

A flat as an investment – drawbacks

The ease of earning passive income without effort is tempting for many investors. Unfortunately, buying a property with a view to letting it also has certain drawbacks. It is worth being aware of them – investing in a flat is a very large expense, so it must be an informed decision.

What are the downsides of investing capital in property?

1. High initial cost – even if you plan to buy the flat with a mortgage, you must have a down payment.
2. Investing in property requires a great deal of knowledge – you need to know the law and also be familiar with how the market works.
3. Letting a flat to strangers always involves some risk – tenants may damage the property or stop paying rent. We also hear more and more about problems with removing troublesome tenants.
4. You have to wait a long time for a return on the investment – be prepared for profits to appear only several, or even a dozen or so, years after the purchase.

The drawbacks above do not mean that buying a flat to let is always a bad idea. However, you need to be aware of what such a decision involves and take all the pros and cons into account.

Rental yield

The rental yield of a flat is a fundamental issue to pay attention to when planning a property purchase. The time needed to recoup the investment should be calculated using realistic and reliable data.

You can do this using the formula:

capital invested / annual cash flow from the property

The cash flow is the rent received from the tenant minus costs, that is:

• fees to the homeowners' association,
• the cost of renovation or fitting out,
• notary fees,
• the cost of purchasing furnishings,
• other additional fees, for example setting up TV or internet, and payment of property tax.

To determine the rental yield, you should always calculate the costs carefully and also estimate the level of rent realistically. Only then can you determine fairly accurately whether an investment in a flat to let will pay off and after how long you will see a return.

Profitability of property investment

The profitability of a property investment depends on many factors and cannot always be determined quickly and accurately. You should also bear in mind that the situation on the housing market is constantly changing. It can be assumed that buying a flat in a large city with universities, available jobs or tourist attractions carries the lowest risk of loss. Small flats, such as studios, are the most popular with tenants. This is also worth taking into account when planning a property purchase.