What is the return on investment when purchasing a rental apartment in Croatia for seasonal leasing?
Real estate investment is one of the most popular forms of long-term capital appreciation. This article analyzes the economic return on an investment based on a model example of an apartment with a purchase price of 120,000 EUR, intended for short-term seasonal rental. We will focus on the expected revenues and costs associated with its operation. The example considers renting the property for 90 days a year to a family of four with a young child under 12 and another child under 18.Estimated Initial Costs
When purchasing an investment property, it's important to consider not only the purchase price but also additional expenses that increase the initial capital investment. These costs in our model example include:
| Item | Cost (EUR) |
|---|---|
| Purchase Price | 120,000 |
| Property Acquisition Tax (3%) | 3,600 |
| Broker Fee (approximately 3.33%) | 4,000 |
| Total | 127,600 |
Regular Annual Costs
Owning and operating a property involves regular annual costs that must be covered by rental income. These costs in our model example include:| Item | Cost (EUR) |
|---|---|
| Property Tax | 650 |
| Electricity | 600 |
| Water | 120 |
| Internet | 300 |
| Local Fees | 200 |
| Waste Collection | 320 |
| Routine Maintenance | 400 |
| Television | 128 |
| Tourist Tax (for a family of three) | 540 |
| Total | 3,258 |
Regular Annual Income
Rental income forms the basis of the economic return on investment. In the model example, the income is calculated as follows:| Item | Amount (EUR/day) |
|---|---|
| Rent | 130 |
| VAT (income loss) | 18 |
| Net Income after VAT Deduction | 112 |
| Annual Income (90 days) | 10,080 |
| Annual Profit after Deducting Costs | 6,822 |
Return on Investment
Return on investment is a crucial indicator that shows investors how long it will take for their investment to pay off. In this model example, we base the calculation on a net annual profit of 6,822 EUR and total initial costs of 127,600 EUR.Return on Investment (in years) = Total Initial Costs / Net Annual Profit = 127,600 / 6,822 ≈ 18.7 years
Investing in real estate, such as an apartment with a listed price of 120,000 EUR, can be an attractive form of capital appreciation, especially if the property is located in a tourist hotspot with high occupancy rates. In this model example, the return on investment is approximately 19 years, which aligns with common investment horizons in the real estate sector. For potential investors, it is crucial to carefully consider both initial and operational costs and to realistically estimate rental income. This approach ensures a sustainable and long-term economic return.
