Our First Rental Property – Selection

In the previous post I have explained how we managed to arrange the financing of our first rental property in the Netherlands. We got the money, but we need to buy something from it. In this article I will share our selection process that has led us finding the new addition of our real estate empire 🙂

The Dutch Rental System

I must start with a little explanation on the Dutch rental system. Every rental property falls in one of the below 2 categories:

  • social housing
  • private housing

You might think that the property you rent out automatically categorized as private housing and social housing are special units that the government or local municipalities rent out for people with low income. This might sound logical in most countries, but that’s not exactly the way it works here. The properties are categorized based on a point system and if based on these points your rental falls under the social housing category, you can’t just ask whatever amount you want for rent (yes, it’s much lower than you would wish to have). More information can be found here.

Even is your property falls under the private housing category, within 6 months from the signing of the rental agreement the tenant can go to the Rent Tribunal (Huurcommissie) in order to determine whether the agreed rent is fair or not. If based on the Rent Tribunal the fair value of the rent is below the private housing threshold (currently EUR 710.68), then they can change the rental price (retroactively!).

Our Criteria

Because of this reason we wanted to buy an apartment with at least 65-70m2 in a nice condition at a good location in order to avoid any unpleasant surprises. Getting a reduced rent from a tenant with whom you are not able to cancel the contract with based on your own wish is not something that you want…

Based on the value of our house we got a bit less than EUR 100k mortgage. As mentioned in the July financial overview, there was EUR 35k cash on our saving account as per the end of the month. Out of this 35k, 10k was our regular emergency fund. This already limited the possible properties based on their value. We have made 3 categories:

  1. EUR 100-120k: This would be an ideal category as after paying the property, the related transaction costs, furniture etc. we would still have our emergency fund. At the same time, these days finding something at this range without the risk of getting an unfavorable ruling from the Rent Tribunal might be a bit too optimistic.
  2. EUR 120-130k: This price range would eat up also our emergency fund. Not the end of the world if we start to build it up again from the first month, but it would surely cause some discomfort for a few months.
  3. EUR 130-145k: This is definitely the ceiling. We would need to sell some of our shares in order to cover the transaction plus related expenses.

The Search

We started our search on the most popular real estate site of the Netherlands, Funda.nl. Here you can apply plenty of filters based on your criteria. We have always looked at two tabs in the browser. One for the apartments for sale, and one for the rents.

The initial filter was apartments between EUR 100-145k, at least 65m2 and 2 bedrooms. For the rentals we set the same size and number of bedrooms, and the rental price filter was minimum EUR 900 per month.

In order to show you the areas where both conditions can be found, I used a little Photoshop in order to adjust the colors and merge the two screenshots together:

Netherlands-buy-rent1

The red houses represent the properties that meet the purchase price criteria, the blue ones are the properties with over EUR 900 rent. (I have also added an extra filter: the map shows the properties that were advertised during the last 10 days.)

Now let’s try to interpret what we see:

Netherlands-rental-property-search

As you can see in the Leiden-Haarlem-Amsterdam-Almere-Amersfoort-Utrecht arch (marked with blue) there are plenty of properties that you can rent out for a good price. At the same time there is nothing available in our budget.

The fast property price increase in the area helped us a lot because of our own house, but now it’s impossible to find anything below 150k.

There are apartments all over the country that are within our budget, but it would be unwise to chose them as the rents are much lower in those areas.

There is an area though where we can find both purchase and good rental opportunities. I marked this area in purple. This is the area of The Hague-Rotterdam-Dordrecht-Breda. Personally we were mainly interested in either The Hague or Rotterdam due to the size of the cities, the amount of companies located there, more expats, students and their location within the country.

Yes, I know that Limburg was cut off from the map. If you’re interested, according to the above research we found that Maastricht has some good rental opportunities but the prices are higher. At the same time other parts of the province is the opposite. In addition it is quite far from us, so we just forgot about this part of the country.

As we narrowed down the areas, we used the same filters on the possible cities. This method has nicely shown the too good, too bad and possible target neighborhoods. Of course subsequently we have spent quite a few days on personally visiting the possible locations.

From there onward we made quite a few actual viewings in order to have a feeling on the actual market. It is quite hot at the moment. Deals are usually made within a few days from the time the property was first put on the market. The final price is mostly above asking. Our first bet on a property was turned down because our offer of 4% above asking was not good enough.

It is also a common trick of the real estate agents that they advertise the property with a low price and reserve a day for an open house with a lot of possible buyers. At the end of the day they will keep on bidding over each other.

Finally we managed to get our chosen property after less than 2 months of active search. In the next article I will show you a detailed calculation on what kind of returns can you expect to get if you invest in a Dutch rental property.

 

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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on financial independence and early retirement.

 

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9 Comments

  1. Divnomics August 15, 2017
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