Buying a property to let is one of the most common investment decisions in Madeira. It is also one most often decided on incomplete maths: expected rent divided by the purchase price, and done. Almost everything between the gross rent and the real return is missing.
The yield that matters is the net one
The gross figure is simple: a €250,000 apartment rented for €1,100 a month earns €13,200 a year, or 5.3% gross. The net figure subtracts what does not come back:
- Municipal property tax (IMI) and insurance, every year, with or without a tenant;
- Condominium fees, which in buildings with lifts and gardens can exceed €500 a year;
- Maintenance and wear: appliances, repainting between tenancies, small repairs;
- Vacant months and letting commissions;
- Tax on rental income, which depends on each owner's situation.
In a prudent scenario these items easily take 25% to 35% off the gross rent. The 5.3% in the example becomes something between 3.5% and 4% net before tax. That is the number to compare with alternatives, not the first one.
Long-term letting or short-term rental
Short-term rental promises nightly rates that, added up, seem to beat a traditional lease. An honest comparison includes cleaning fees, platform commissions, management, consumables, an occupancy rate that is never 100%, and energy and water bills. It also includes two risks that never appear in the simulations: the legal regime may change, and the condominium or municipality may restrict the activity. Long-term letting earns less per night but with far less management and volatility.
What drives resale value
Anyone buying to let should buy as if they will sell one day. A location with demand from workers and students, good access, parking and a state of repair that does not require immediate works are worth more than luxury finishes that do not translate into rent.
Before you decide
- Work out the net yield, not just the gross one.
- Confirm a realistic rent from two or three comparable listings, not the most expensive one.
- Add IMI, condominium fees, insurance and an annual maintenance allowance.
- Simulate two vacant months a year.
- Confirm, if relevant, that the property and the condominium allow short-term rental.