A 6% return will not pay your monthly loan instalment.

01The advertised price is not the capital committed

Listings often divide annual rent by the asking price alone. But you also pay acquisition costs and sometimes renovation costs before letting. Leaving these out does not make the calculation prudent; it makes it flattering.

Start with total cost: price, estimated acquisition costs, works and initial spending. Every figure needs a source. An estimate remains an estimate, even in an attractive spreadsheet.

02Gross helps you screen. Net helps you understand.

Gross return divides theoretical annual rent by total cost. Net return subtracts owner-paid operating costs and an allowance for vacancy. Here, it is calculated before personal income tax and financing.

Routine maintenance is an annual expense. Initial renovation increases invested capital. Counting them twice distorts the calculation the other way. Method matters as much as the result.

• Distinguish documented rent from hoped-for rent.
• Deduct costs actually borne by the owner.
• Allow for vacancy before it occurs.
• Show personal tax and loan payments separately.

03Cash flow asks a different question

Return describes the property. Cash flow also describes your financing. After debt service, an investment may require monthly cash contributions even with a positive net return. Part of the loan repayment may build equity, but it still needs paying every month.

Educational example only: total cost of €300,000, monthly rent of €1,200, one vacant month and €3,000 annual expenses yield €10,200 net before tax and financing. With loan payments of €1,100 a month, the average shortfall is €250 a month before personal tax.

04Before the next viewing

Rebuild the three figures on one page. Change one assumption at a time: an extra vacant month, a higher quote or lower rent. If the project only works when everything goes well, you have found the decision point.

The Immoshark calculator lets you repeat this exercise. Its results follow from your assumptions; they are neither a market valuation nor a purchase recommendation.