The term "Buy-to-Let" means simply the purchase and ownership of a property through normal procedure (see Purchase Procedure). Once completed the owner seeks to rent this property for a regular income usually exceeding annual mortgage repayments.
The "Buy to Let" market in Morocco is expected to grow rapidly in line with the Vision 2010 project launched by King Mohammed VI and the UAE. This project is designed to improve the infrastructure, leisure utilities and other aspects all aimed at drastically increasing tourism. The target of the Vision 2010 is to increase the number of visitors to Morocco by 10 Million per year.
Part of this project is to encourage residential development which is currently underway with some fabulous 5 star developments being constructed. The huge increase in tourists will of course create a proportional requirement for accomodation. This is an excellent opportunity for "Buy to Let" investors to enter an emerging market at a time when purchase prices are at a low safe in the knowledge that a multi Billion dollar project is underway to generate vast volumes of tourists requiring accomodation and providing you with a comfortable rental income.
Although priced very reasonably Morocco property is being constructed with luxury in mind and already attracting the rich and famous. The harbours being constructed under the development program are creating a new hot spot for the financially elite. For the "Buy to let" investor this too is excellent news as a 5 star luxury environment helps to keep rental yields to a maximum.
The rental market in Morocco is certainly more advanced than most emerging markets. It is noted that 85% occupancy is currently very common during the high season months and this figure is set to increase as Vision 2010 drives tourists to the Moroccan resorts faster than property can be built to accomodate them.
The goal of any "Buy to Let" investor is to cover any mortgage payments and generate a secondary income stream from their property investment. Morocco looks to be a great location to deploy this strategy with investors aiming to cover all mortgage payments and bills for the year with rental income generated from the high season months alone (4 months, July - September). As a guideline only, its expected that during this high season period, rental from a 2 bed apartment costing €100,000 should produce rental returns of €2,000 per month or more for the investor.
John decides to purchase an investment property and decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3000 reservation fee already paid)
Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months "High Season" he receives €2000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leaves John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for Johns new property are as follows (conservative figures):
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.
Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.
* During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.
The final decision to be made by the "Buy to Let" Investor is which letting strategy to use. Its obvious that the highest income is made by the property owner by letting out short term during the high season. However you can off-set this against the increased overheads in constantly finding short term rental clients and the maintenance costs between clients. Long term rentals typically pay less on a month on month basis but usually require far less input from the property owner and the rental income is fixed over the course of the year. Some property owners choose to rent long term during the low season and then short term to higher paying holiday clients during the high season. The decisions to be made on your letting strategy are usually answered in part by the property you purchase.
In Morocco "Buy to let" investments will certainly favour the short term strategy due to the luxury style of the developments and the huge influx of expected tourists. However some investors may decide to rent at lower rates aimed at the international workforce that have re-located to service the increasing tourist industry.
The "Buy to Let" Strategy is not ideal for EVERY investor and it is essential that property for this strategy is chosen wisely as it needs to be a rentable property in a popular location to allow the investor to maximize income from the Investment. Even in a very busy market there is still competition and to maximize occupancy rates its vital that your selection of location, property, unit and monthly rental charge will directly effect occupancy and in turn your rental income.
The other benefit from this type of Investment is that during the time this property is being rented and earning the Investor an income and acting as a holiday home it is still appreciating in value at one of the fastest rates available. All in all the "Buy to Let" Investment model is a sound investment decision and Morocco is currently an ideal location to deploy this strategy.
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