Lisbon 3-bed at €1.311m and €8,816/month: does the net yield hold up?

S

SmallChart

Landlord
Established
I have checked the basic purchase and rental figures for a 3-bed new-build flat in Lisbon, but I am not yet convinced the projected income is achievable or that my expense lines are complete. The price is €1,311,000 and the quoted rent is €8,816 a month, which produces a gross figure of about 8.1%.

My model allows for empty periods, management, ordinary repairs and one larger item, with no appreciation assumed. That still may flatter the result if the €8,816 is based on shorter stays rather than a durable tenancy, or if condominium charges, insurance and taxes are understated. Financing terms could also change the cash return sharply even where the property-level yield looks acceptable.

Which assumption would you challenge first? I am inclined to verify evidence for the rent and define the intended letting model, then rerun vacancy, insurance and borrowing costs before deciding what net return makes the purchase worthwhile.
 
Before focusing on maintenance, I would test the €8,816 rent. Is that a signed long-term rent, an agent estimate, or an average based on shorter stays? At this price, a modest change in achievable rent matters more than fine-tuning the repair reserve. I’d also include condominium charges, insurance and property tax as separate lines rather than hiding them inside maintenance.
 
What does your vacancy assumption actually represent: an empty month between long-term tenants, or frequent gaps and cleaning between shorter stays? Those are very different operating models. Furnishing and tenant turnover can also create lumpy costs that a routine maintenance percentage misses.
 
I’m sceptical of treating 8.1% as meaningful until the rent basis is verified. Annual gross rent is €105,792, but that is only the numerator before any friction. I would want evidence that comparable 3-bed flats achieve this rent consistently, not merely that one could be advertised at that level.
 
A new build may reduce near-term repairs inside the flat, but it does not eliminate building-level expenses. The condominium budget and the possibility of extraordinary contributions deserve attention. Parking, lifts, shared systems or extensive common areas can make a visually sound building expensive to operate without anything being “wrong” with it.
 
A useful way to frame the decision: a 5% net yield on €1,311,000 requires €65,550 net income annually. Against gross rent of €105,792, that leaves €40,242 for all operating losses and costs. A 6% net requires €78,660, leaving only €27,132. Put every assumption into those two expense envelopes and see which one is credible.
 
I would separate recurring maintenance from capital replacement. Paint, minor plumbing and appliance calls belong in the first bucket; eventual replacement of major fittings belongs in the second. One generic “large repair” allowance can be misleading because several items may arrive together after a tenant turnover.
 
Is this intended as a cash purchase? If financing is involved, run the model at a higher borrowing cost and with a few months of weak occupancy. A property can have acceptable unlevered net yield while producing uncomfortable cash flow once debt service and irregular expenses overlap.
 
Helpful distinction. The €8,816 is currently an expected rent rather than contracted income, so I agree that validating it comes before debating small maintenance percentages. I’ll rebuild the model with separate lines for condominium charges, insurance, property tax, turnover and capital replacements, then compare 5% and 6% net cases. Financing will be tested separately; appreciation remains zero.
 
Also calculate yield on the full amount of cash needed to acquire and prepare the flat, not just €1,311,000. Transaction costs, initial furnishing if required, and any work before the first tenant reduce the effective return even though they do not appear in annual operating expenses.
 
Since the rent is not contracted, I’d use at least two rent cases rather than one vacancy percentage: the full €8,816 assumption and a lower sustained-rent case. Vacancy does not capture the risk that the flat is occupied all year but only at a lower monthly figure. That is the sensitivity most likely to change the decision.
 
For the Lisbon-specific side, ask for the condominium’s current budget and what the quoted monthly contribution includes, then confirm the property-tax basis with someone familiar with the exact property. Do not assume the purchase price alone tells you the annual tax bill. I would also ask whether any building expenditure is already being discussed, even with a new build.
 
Agreed on the condominium point, but I still would not let detailed local costs distract from rent verification. My decision rule would be simple: if the deal only reaches the desired net yield with €8,816 every month and optimistic turnover, pass. If it still works after lower rent, explicit building costs and a capital reserve, then the headline number may be worth pursuing.
 
You must log in or register to reply here.
Back
Top