Rental housing is a numbers game and the most important laws of ROI

"Investment housing today is no longer only for "professional" investors. More and more young people, families or heirs are considering whether it is worth purchasing an additional apartment and receiving passive income. However, "passivity" here is often deceptive. Without an accurate assessment of the location, price or tenant profile, even the best apartment can stand empty. And renting can bring headaches instead of profits.

 

The market reacts quickly to even the slightest fluctuations: competition between landlords is growing, tenants are becoming more selective, and trust comes only through a clear strategy. And today's financial realities show that personal financial management is becoming increasingly important. The pension reforms underway in Lithuania clearly show that relying on the pension system alone is no longer enough - in order to ensure a dignified old age, additional sources are needed. This means that we must not only think about how to live today, but also take care of our financial future.

 

When choosing a rental property, it is important to imagine not only the numbers, but also the person who will live in that property. Is he looking for a quiet neighborhood? Does he need quick access to the center? The answers help not only to plan the return, but also to choose the type of tenants and communication with them.

 

Housing intended for rental should be assessed as a financial tool. Its attractiveness primarily depends on versatility, local liquidity and potential return.

 

Citus analysts calculate that the Vilnius rental market currently generates an average of 5 percent annual return, but in some neighborhoods or projects this return can reach 5.5–6 percent. The return rate is calculated by dividing the annual rental income by the total investment amount.

 

The location has the greatest influence on the return. Tenants are usually looking not for the view from the window, but for convenience: how many minutes to work, whether public transport is nearby, whether there is a shop, kindergarten, sports club.

 

Currently, the most expensive neighborhoods in Vilnius, according to data available from Citus, are Senamiestis (about 23 EUR/sq m), Paupys (about 22 EUR/sq m) and Naujamiestis (about 19 EUR/sq m). These are places where everything is within walking distance and the rhythm of life does not stop. However, it is also worth paying attention to neighborhoods whose value is rising rapidly. For example, in Markučiai and Žirmūnai over the past five years, rental prices have increased by more than 50 percent, and in Naujamiestis – by as much as 58 percent. This means that neighborhoods in the process of change often have great investment potential.

 

In terms of supply, 2-room apartments currently dominate the Vilnius rental market – they account for almost half of the total supply; 1-room apartments account for about 33, and 3-room apartments – about 15 percent. This distribution shows that it is worth considering 1- and 3-room apartments as well. Their supply is smaller, and the rental price can be up to 15 percent higher. In addition, they are more attractive to families or long-term tenants - which means less turnover and a more stable income stream.

 

When buying a home with the aim of renting it out, the most important thing is to understand that this is not a personal decision, but a market decision. This home does not have to match the owner's taste: it must be attractive to the widest possible range of tenants.

 

When setting the price, it is easiest to analyze similar properties in the same area. Secondly, evaluate the condition and features of the property: a well-maintained, modernly equipped property can be rented for a higher price. An important factor is seasonality, as the rental price is often higher before September, the start of the school year, due to demand.

 

Finally, the duration of the lease also affects the price: long-term contracts, despite often lower prices, ensure a stable income. Short-term rentals can provide higher prices, but with higher risks and possible downtime.

 

It is often not considered that one month when the property remains unrented can be more unprofitable than a lower rental price.

 

For example, if you want to rent a property for 700 EUR/month, but the real rental price on the market is 650 EUR/month, a month of “downtime” will not only wipe out rental income, but you will also have to cover utility bills, which on average amount to about 150 EUR/month. If you had set a lower price right away, the annual income would have been 7,800 EUR; with a higher price after waiting a month – 7,550 EUR.

 

It is important to evaluate all the components: loan interest, property maintenance costs, long-term value growth. Even with a modest rental return, the investment can be profitable if the value of the property increases.

 

A good landlord is not someone who wants to earn as much as possible, but someone who knows how to predict, adapt and think ahead. Today's rental market requires flexibility and quick response. But in a way, this is quite good news.

 

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