Rental Returns In Santiago Exceed 9%

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Rental returns matter to everyone. And if they don’t, they should.

Investors want a fair return on their money, second-home owners frequently want to rent their properties out while they’re away, and even those who live abroad full-time should pay attention because potential rental returns will enhance the value of their property at resale time.

Here in Santiago, Chile, the potential for rental returns varies widely, even among the nicer neighborhoods.

But make no mistake… there are some good returns to be had in Santiago.

For the purposes of this report, I’ve studied only furnished apartments that are being rented on a monthly basis. Where properties had daily or weekly rates, I only used their monthly rate.

Determine How You Intend To Use Your Santiago Rental

The plans you have for using your property will determine the type of rental property you ultimately buy. If you are strictly renting the property, then it’s fairly easy to pick the optimal size in your desired market.

If you’re going to use it yourself part-time, then it’s not so easy.

As new landlords quickly find out, the best returns do not always come from the areas or properties where you’d want to live longer-term, so part-time residents will need to compromise. For example, a one-bedroom apartment in an area with heavy tourist traffic may produce the best returns, but it may not be an ideal part-year living arrangement.

The secret to success with this compromise is to acknowledge that it exists—and determine what you’re willing to do about it—before you start shopping for properties.

Maybe you’re willing to live on a noisy street in order to get better rental returns when you’re not in residence, or maybe you’re OK with lower returns in order to enjoy some tranquility in a less-active area.

Zeroing In On The Neighborhood That Suits You Best

I did a survey of some of Santiago’s most popular neighborhoods. That is, areas popular with business travelers, expats, and long-term visitors.

Las Condes is a relatively new, modern, clean, and upscale neighborhood. It’s an exclusive sector, with a high-income population and a strong corporate and business climate as well.

Barrio Italia is an upper-middle-class area that feels like a quiet, residential neighborhood from 50 years ago. It also holds a surprising number of antique shops, sidewalk cafes, restaurants, and coffee and pastry shops, along with a handful of clothing boutiques and galleries—many of which are hidden away in the interior courtyards common to the houses here.

Nueva Providencia is one of the most desirable areas in the city for the long-term visitor or expat. It’s an upper-middle- to upper-class sector, marked by tree-lined streets, tasteful residential options, and a strong corporate and business presence. Despite Ñuñoa’s claims, I think Nueva Providencia has the city’s best concentration of clubs, cafes, restaurants, and commercial conveniences outside the city’s tourist zones.

Ñuñoa is a part of Santiago’s metro area that has still managed to maintain the ambiance of a quiet, residential sector. It has become increasingly popular with young professionals and now offers a handful of tasteful condo buildings in addition to the quiet, single homes on its tree-lined streets. Ñuñoa is also a nightlife zone, with a great selection of clubs and restaurants.

Barrio Lastarria and Bellas Artes are areas I’d label as tourist zones along with nearby Bella Vista. But they’re tourist zones for good reason. This is a beautiful historic area, with lots of fine dining, cafes, and beautiful parks, along with some of the city’s best architecture. If you had only one day to spend in Santiago, you’d want to spend it here.

Barrios Brasil and Yungay are works in progress. These adjacent neighborhoods are part of Centro and have a wealth of unrestored buildings interspersed with a few beautiful renovations. This would be a slow area for rentals but ideal for the long-term investor.

If you’re considering buying-to-rent in Santiago, it’s worth it to study up on these areas. If you’re considering living here part-time (or full-time), you’ll want to pick an area that compliments your preferred lifestyle as well as your target rental client.

No Matter What You’ve Heard, Size Matters

The size of your property is another area where compromise comes into play. In Santiago—as with most markets—smaller units have a better return on investment than larger ones when comparing the cost of the property to average rental income.

A large property, although comfortable for your in-country visits, will return a lower percentage of what it cost to purchase the property.

Here’s an example: A one-bedroom apartment in Nueva Providencia rents for an average about US$41 per square meter. A two-bedroom apartment in the same sector rents for US$22.33 per square meter.

Another good example is in the elite district of Las Condes. The one-bedroom average was about US$30 per square meter, the two-bedroom average was just under US$24 per square meter, while the three-bedroom average was around US$19 square meter.

When you pay extra to get that larger apartment, you’ll take a hit on its ROI.

Occupancy Will Differ Greatly Among Sectors

The first thing you have to do when adding common sense to these statistics is throw out Barrios Yungay and Brasil. The cost to purchase looks cheap, at US$1,885 per square meter. But remember, most of the properties you’ll find here need work. To get US$22 per meter in rent, you’ll need to invest more than the purchase price. The other problem is that occupancies in this area are low right now. As I mentioned earlier, this is a prime area for a long-term investor who wants to add value.

You can expect the best occupancies in Lastarria, Las Condes, and Nueva Providencia. In the middle of the pack you’ll find Barrio Italia and Ñuñoa, with Barrios Yungay and Brasil bringing up the rear.

In the end, Lastarria gets my vote for providing almost the best return with a lower point of entry than Nueva Providencia, while still offering a high quality of life. For a bit less tourist traffic, go with Nueva Providencia; for a quieter setting, try Barrio Italia.

If you’re coming to Santiago, I’d allow a few weeks to get a feel for these areas and look at some choice properties.

Lee Harrison provides overseas property advice in his free weekly Overseas Property Alert. For more information on overseas real estate, read more about the upcoming 2015 Global Property Summit.

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About Author

Lee Harrison

Lee has been living overseas for since 2001, making his first purchase abroad in the colonial city of Cuenca, Ecuador. After that first investment, he traveled extensively across Latin America and Europe looking for the best property deals possible. Lee’s network of property insiders from those travels, along with his understanding of local cultures and languages, has helped him develop insight into local property markets that only the locals usually possess. He offers overseas real estate advice in his weekly Overseas Property Alert.