Generally speaking, a successful residential rental investment will give you net yields of between 5% and 8% a year.
I’ve seen higher net yields over the years when an extraordinary market situation arises… or on a cash-on-cash basis when using leverage.
For instance, my Panama City rental hit a 20% cash-on-cash net yield for a year or two when it was rented out short-term back in 2007 and 2008. And some rentals in Medellín back in 2010 and 2011 were achieving 15% to 18% net yields for a while.
When you find such a market situation, you have to act quickly because property values will go up once investors start chasing these exceptional returns.
I’m getting in touch with you today as I’ve just identified one such extraordinary market situation…
Net 18% To 20% A Year On Brazil’s Booming Resort Coast
Right now, a developer in Brazil is projecting what must initially be considered unrealistic net rental yields of 18% to 20%.
After reviewing the projections and the rental market dynamics, however, the numbers are spot on… if not conservative.
The market here is just outside of Fortaleza, a rapidly growing coastal resort area in Brazil. This is already an active tourist market for Brazilians, but it continues to grow.
New direct flights from around the world are creating greater access and stronger international tourism. In fact, Air France-KLM recently selected the Fortaleza airport as their regional hub in Northeast Brazil…
Traffic from Europe to Fortaleza is expected to increase 40% over the next couple of years as a result.
The developer here is building turnkey rental units inside a master-planned development. The development already has a water park, golf course, hotels, and, of course, a big, long beach.
More importantly for us, the rental management companies here are demanding more rental properties.
This particular resort area attracts both locals from the nearby city as well as Brazilian tourists from the region and farther south. The water park saw more than 1 million visitors in 2016 for the first time. That’s about a third of the total annual tourist traffic in Fortaleza. The numbers of visitors in the couple of years since have been even higher.
The fast-growing tourism in this “Beach Park” (as it’s known locally) is what’s driving the demand for rentals… and creating the current market forces that allows for out-of-sight, double-digit rental yields.
18% To 20%?! How Are Those Yields Being Achieved? An Analysis…
When a developer tells me he’s projecting yields above 12%, I’m skeptical. Anything over 15% on rental property, I normally laugh and walk away.
However, I’ve known these developers for a while and I’ve personally invested with them. They are serious and well-connected, so I gave them time to explain how they got to such high yield projections…
The first statistic they referenced in their response was an important one…
- The annual occupancy rate for everything in the current area is right at 80%…
Hotels may see that level of occupancy at the top of their normal market cycle, but short-term rentals don’t usually see that level of year-round occupancy. Fortaleza, however, is well positioned for year-round tourism.
That said, the developer didn’t use 80% in their projections but rather 60% just to be conservative.
With that passing the test, my next thought was that they used too high of a nightly rental rate for the property…
In this case, they took average prices off of Airbnb. Of course, prices vary depending on time of year, but the average price per night used for the projections is 500 reais (Brazil’s currency). Airbnb prices range from 300 to 650 reais for the various dates I used as a test. The lower-priced properties were farther from the beach, while higher-priced properties were close to the beach.
- The investment property here is well situated and close to the beach, and the projected rental prices
are accurate…
The next things to look at are the expenses and the total investment amount used.
I’ll get into the specific numbers later on, but the developer actually includes closing costs and the cost of furniture when calculating the yield. Most developers just use the property list price and ignore closing costs and furniture in order to prop up yields.
- Closing costs and furnishing expenses are already included in the projected 18% to 20% yield…
With the market, developer, rental manager, and yield projections all getting passing grades, I’m confident in this opportunity as my most recent personal investment.
I encourage you to get in touch and get complete information for your own consideration.
Beach Townhouses For Only US$99K—Financing Is Available
Importantly, demand from rental managers in the Beach Park area prompted the creation of this project.
These are the companies that make a living renting out investment properties, and they know the market better than anyone.
The developer has designed a home that targets the local market instead… small, three-bedroom units that can fit the whole family. These three-bedroom townhouses are 110 square meters (1,184 feet) in size and are specifically designed for short-term rentals in the Beach Park neighborhood.
All units will have direct, permanent ocean views and the complex will have its own pool, gym, and sauna. Each unit can also have an optional hot tub on its rooftop.
The developer is offering two pre-construction purchase options.
You can pay cash up front and pay just US$99,000, or you can payUS$110,000 with a 25% down payment and interest-free, monthly payments over 24 months.
The 20% net rental yield is based on the US$99,000 cash price plus the estimated US$5,000 closing costs and a US$15,000 furniture package. The latter includes everything needed to set up the property as a short-term rental: appliances, lighting fixtures, curtains, beds, TV, dishes, sheets, towels, etc.
Again, only 4 of these units remain. In addition, the developer has reported that they will be raising the prices by about 10% later this year.
Easy Cash Flow: This Is A 100% Turnkey Investment
These townhouses are turnkey and will be fully managed for short-term vacation rentals by a fully vetted and proven property management company.
The property manager makes the investment yields completely turnkey…
They’ll take care of everything from personnel expenses, marketing, maintenance, and cleaning. They’ll deal directly with your rental prospects and tenants, including everything from responding to emails, to booking and collecting rent, to checking in renters upon arrival.
The property rental management company also takes care of maintenance, bill-paying, and any other administration.
Again, this is a fully turnkey investment… one with projected net annual yields of 18% to 20%.
And only 4 units are left.
I urge you to get in touch immediately to learn more and to see if this could be a fit for your investment portfolio.
Lief Simon
