How to Buy Apartments in Paphos & Investing in a Rental Property

Investing in a rental property

To buy apartments in Paphos or Investing in a rental property can be lucrative if you know what you’re doing, and one of the most important factors to be knowledgeable in real estate is location. Certain markets are optimal for real estate investments, while others are not ideal for this purpose. That’s why investors need to conduct proper research before they buy apartments in Paphos as an investment property ,to ensure good return on investment.

What Is a Rental Market Analysis?

Rental market analysis is an essential part of the real estate investing process. It comprises collecting and analysing market-level real estate data and rental data on the location where you’re investing. A rental market analysis provides a complete overview of the rental market and how income properties are performing there in terms of all crucial indicators. Some of the most popular metrics to look at when analysing the investment potential of an area include property prices, competition, rental rates, rental demand, occupancy, capitalization rate, and cash on cash return. The said numbers help investors evaluate whether they can afford to purchase an income property in the Cyprus market and whether it will bring them the expected return on investment.

Moreover, analysing the performance of existing rental properties helps landlords and hosts set up the right pricing for their rental units once they start renting out. Offering competitive rental rates by areas will help them optimize occupancy without leaving money on the table.

Why Is Rental Market Analysing Important before you buy apartments in Paphos?

The importance of real estate market analysis lies in the fact that it helps you make wise, profitable investment decisions and, later, optimize the bottom line of your real estate investment.
First, the rental market analysis serves as a market predictor. By evaluating the factors affecting rental property investments, it lets investors determine the potential income and cash flow of real estate listings there.

Knowing a property’s potential profits before you buy apartments in Paphos, will help avoid any unpleasant surprises after closing the deal. It’s much easier to buy a winning property from the “Get-to- go” rather than purchasing a suboptimal rental property and working on making it a winner.

Second, upon purchase, you must determine the rental rate that you’d ask for your property, and the best way to do that is through rental market analysis again. When you know competitors’ rates, you can choose a range that will bring you the necessary balance between occupancy and rent to maximize monthly revenue.

That’s why conducting analysis of the rental market is one of the key steps in the process of buying long term and short-term rentals for sale and starting a rental property business.
As a savvy investor, you should keep in mind that there are three main types of rental market analysis that you need to consider:

• Nationwide
• City-level, and
• Neighbourhood-level.

How to Conduct an Accurate Rental Market Analysis in 6 Steps

If you want to assess the rental potential of a specific real estate market, you need to conduct a comprehensive and accurate rental market analysis. The goal of analysing the rental market is to better understand the average prices, rent, and return on investment in the area. They will inform your decision on whether to invest there or choose another more promising location.
Moreover, rental market analysis should tell you whether available rental properties for sale make sense. The comparative side of the analysis allows you to know if a rental will outperform the competitors in a particular area or not. Thus, it is an important step not only in selecting the best market but also the best property.

To perform an analysis of the rental market, you should know the six steps involved in this process:

Step 1: Analyse the City

The first step in analysing rental markets before buying an investment property is taking a look at the city. Several factors make certain cities better suited for investing in rental properties than others.

Specifically, you need to look at:

• Prevailing property prices: Go for a city where you can afford to purchase without risking foreclosure.
• Real estate appreciation rates: Invest in a real estate market where your property’s value will go up over time to make money in the long run.
• Share of renters vs. homeowners: Choose a rental market where the population tends to rent rather than own.
• Average rental rates: Make sure that the rental income is enough to bring good profit, considering the property values of single family or multifamily homes within the area.
• Rental demand: Look for markets with strong job opportunities and positive population growth where finding tenants will not be a problem, or where lots of tourists visit year-round.
• Price to rent ratio: Find a good balance between rental rates and rental demand.
• Average rental operating costs: Look for cities where costs are significantly less than revenue to assure positive cash flow.
• Return on investment: Look for the average capitalization rate and cash on cash return that rental properties bring. Aim for cities with rates above 5% (and individual properties above 8%).
• Legal environment: Invest in landlord-friendly districts to be on the safe side. Even more importantly, look for areas that allow non-owner-occupied short-term rentals if that’s your preferred rental strategy.

Step 2: Evaluate the Neighbourhood

When analysing a rental market, and considering to buy apartments in Paphos  the city is not enough, so the next step should be diving into the specific neighbourhood. Especially in large metro cities, each area comprises its own rental market, with its own requirements and providing its own results to investors. There are certain things that attract tenants and/or Airbnb guests to a neighbourhood, and they will help your investment property perform well and bring high profit. On the other hand, there are things that repel renters. That’s why you need to keep a close eye on all these indicators when conducting comparative rental analysis to choose the top location.

Important Factors to Look for in a Neighbourhood

Here are a few positive factors that you should search for in an area:

• Access to public transportation: Not all renters own a car, so having the option to commute is essential, whether living in the area or staying for a vacation.
• Reasonable walkability score: In most cases, the walk score in an area is as important as having access to public transport, as there are people who prefer to walk rather than drive or ride.
• Access to quality education: If your target renters are families with kids, access to quality education is also crucial. That’s why you should look for good private and public-school options when choosing a neighbourhood to invest in.
• Nearby amenities, facilities, and attractions: Choosing a location that features a variety of amenities, such as parks, libraries, and cultural venues, is a plus.
• Easy access to dining and shopping: Another plus factor is the availability of restaurants and shops within or near the area, especially if you want to buy a vacation rental.
• Easy access to medical services: You should check on available ERs, clinics, and hospitals near the location to ensure that your tenants will not have difficulty finding one should they need it.
• New businesses: An area where new businesses are being launched is great for investing in rentals because the area is undergoing development.
• Safety: Renters want to live in areas that are safe and clean. Make sure to invest in safe neighbourhoods to ensure demand for your rental property.

While you can expect to face higher property prices in areas that tick all the boxes, the increased demand from renters and the better rental rates will compensate for the difference. Overall, you can generate much better ROI in neighbourhoods with positive indicators.

Things to Avoid When Looking for a Neighbourhood to Invest In

When conducting neighbourhood-level rental market analysis, look for areas that don’t have:

• Poor maintenance: Areas that aren’t well-maintained and cared for are a big no-no. Make sure to avoid areas with many potholes, dirty sidewalks, broken streetlamps, and suspicious bystanders.
• Multiple distressed or vacant properties: If a neighbourhood has numerous distressed properties and homes that are vacant, it can be a red flag. You wouldn’t want to invest in that area.
• Closed businesses: Another red flag is if more than a few businesses are permanently closed. It means the area is not growing enough, and people are no longer investing in that location.
• Noisy and polluted areas: Check the neighbouring single family and multifamily homes, businesses, and facilities and make sure they are all conducive to harmonious living. Avoid noisy areas with excessive pollution levels like a factory.
• Remote areas: Avoid a neighbourhood that is located in a remote and isolated place. Nobody would want to live in a neighbourhood that isn’t easily accessible to schools, medical facilities, and shops.
• High crime rates: Before you buy a rental property, make sure you check the crime rates in the area. No one wants to rent in a location that is unsafe. Moreover, your investment property might be vandalized.

A rental market analysis will show you that your potential return on investment in areas with negative indicators is, in fact, not so good. Even though properties are cheaper, expenses will be higher than the average rent, leaving you with negative cash flow and an underperforming investment property. Moreover, finding renters can be difficult for properties in isolated, unsafe neighbourhoods.

Step 3: Find Rental Comparisons

After you know what the neighbourhood is like, in terms of high-level indicators, you need to determine if it’s a good place to start investing in long term or short-term rentals. So, the next step in the rental market analysis is to look for comparative properties to the one that you are planning to purchase. Rental comparable, or rental comparisons, help property investors derive the average rent for the area.

It’s important to note that not every property that’s located within or near the area of the subject property can be considered a comparable property. In general, rental comparisons are in the same neighbourhood and the same area code. They should follow the same rental strategy, either as a long term or short-term rental. Also, they should share similar features and amenities.

Typically, good rental comparisons should be similar regarding:

• Square meterage
• Property type (single family or multifamily)
• Number of bedrooms
• Number of bathrooms
• Plot size
• Condition (updated, original, distressed, etc.)
• Age of the building
• Amenities

How to Find Rental Comparisons 

Real estate investors should try to find at least three comparisons for accurate rental market analysis. Try talking to a realtor or a property manager and ask about comparisons for your rental property. Also, check out long term and short-term rental listing websites.

However, finding rental comparisons and analysing them manually can be a tedious task. You’ll need to find all the necessary information on your own and make sure they’re accurate. Then, you’ll have to input all these data into an Excel spreadsheet and manually compare them with your subject property. This is not only time-consuming but also prone to human error.
For rental comparisons and analysation, rental property investors will need to further take into account the following details for a rental market analysis.

• Similarity
• Distance
• Number of bedrooms and bathrooms
• Monthly rental income
• Daily rate
• Occupancy rate
• Ratings and reviews

The last three metrics refer to vacation rentals only. So, in this way, you can know immediately how properties similar to the one you’re considering investing in are performing in the local rental market.

Step 4: Calculate the Rental Rate

One of the main goals of conducting rental market analysis is to find out how much money you can make in the area, so the next step in the process is computing the rental income.

If you invest in a long-term rental property, the rental revenue is basically the monthly rent that you charge. However, if you plan to buy a short-term rental, things are a bit more complicated. The monthly short term rental income is the product of the average daily rate and the occupancy rate. We say the average daily rate as Airbnb nightly rates are dynamic and change from day to day.

So, once you’ve identified the rental comparisons in Step 3 above, it’s now time to create a range of rental estimates that make sense for properties similar to your choice in your local rental market. You can expect your revenue to fall anywhere within this range. But to optimize the performance of your property, you need to price it at the optimal rate, not just anywhere in the range.

To do it, you need to analyse exactly how similar and different your rental property is from the comparisons. Don’t look only at high-level features like the number of floors and rooms, but also go into details like quality of furnishings, amenities, etc. Position your property exactly where it belongs along the range of available comps to find out the most suitable rental rate.

How to Find Rental Income

Calculating the prevailing rental rates in a neighbourhood and the best rate for your specific property requires a lot of long term and Airbnb data collection and analysis. Alternatively you may consult with track record professional’s within the industry,

Step 5: Determine the Costs of Rental Properties

So, once you’ve gotten that far in the rental market analysis, you know that you’re investing in a desirable neighbourhood and what the rental price is likely to be. Now, as a savvy real estate investor, you need to know what recurring monthly expenses you can expect in the area. After all, every long-term rental or Airbnb business incurs certain operating expenses. Knowing how much you will need to spend on renting out and maintaining your income property is important for several reasons. First, the cash flow is the difference between rental income and rental costs, and it must be a positive number. Otherwise, you’re simply losing money from real estate instead of making money.

Second, the cash flow is present in all return on investment formulas, so it means that monthly rental costs affect profitability. The lower the operating costs, all else equal, the higher ROI you’re able to generate from your investment.

What Expenses Rentals Incur

Let’s consider at the most popular expenses that you’ll need to cover when renting out a single family or multifamily home:

• Monthly mortgage payment
• Property tax
• Home insurance
• Rental income tax
• Property maintenance
• Property management
• Utilities
• Restocking
• Airbnb and/or another listing platform fees
• Rental marketing fees

How to Estimate Rental Costs

When analysing the investment potential of a rental market, the process for finding the prevailing rental expenses is similar to the process of finding the prevailing rental rates. Costs vary from one real estate market to another, just as they vary from one property to another. The costs differ because of size, rental strategy, amenities that need to be maintained, etc.
The conventional way to factor costs in your rental market analysis is by looking for rental comps and figuring out what expenses they generate per month. But that’s even harder than finding the income that is usually available on rental listing websites. No long term or short-term rental listing platform shows the monthly expenses. So, investors need to talk to other investors.

Step 6: Figure Out ROI in the Market

Last, but not least, when performing rental market analysis, investors need to find out what return on investment they can expect there. The ultimate goal of any real estate analysis is to find the most profitable opportunities, whether in terms of a location or an actual property. The two main ROI market-level metrics in rental property investing are the capitalization rate and the cash-on-cash return. They are somewhat similar, with the major exception that the cash-on-cash return considers the method of financing, which makes it a more comprehensive measure, but also harder to calculate.

Knowing what capitalization rate and cash on cash return a certain neighbourhood brings allows you to decide if it’s a good choice or if it’s better to look for an alternative location. Furthermore, comparing the long term and short-term rental ROI helps you pick the best rental strategy for this specific market if you don’t have strong preferences.