Milan 3-bed at €1,247,000 and €9,043/month: what am I missing?

N

nia_sage

Property manager
Established
I would like the Milan condo to work without assuming any appreciation, but I cannot yet tell whether the attractive rent figure survives the ownership costs. The price is €1,247,000 and the expected rent for the 3-bed is €9,043 a month, so the initial gross return is about 8.7%.

I have allowed for periods without a tenant, agent or manager fees, ongoing upkeep and a substantial repair, but insurance remains uncertain. I may also be missing property tax or building expenses that stay with the owner. The building appears sound, although I have not yet seen its actual cost history.

Would you investigate the support for the rent first, or verify the owner-paid charges and taxes? I am also interested in the minimum net return others would want once tenant turnover and management are properly included.
 
The gross calculation works: €108,516 annual rent against €1,247,000 is about 8.7%. But that figure is only useful once every condo charge is separated into owner-paid, tenant-paid and uncertain items. I would request the building’s actual expense history rather than extrapolating from a generic allowance.
 
One more question: what supports the €9,043 rent—an existing lease, comparable listings or an agent estimate? The confidence level of that number matters more than fine-tuning a maintenance percentage.
 
I’d focus on common-building costs and possible major works, not just repairs inside the unit. A condo can look sound while still facing expensive shared projects. Ask for recent meeting records, planned works and any amounts already discussed, then confirm which recurring charges can actually be passed to the tenant.
 
I’m less worried about routine vacancy than about what kind of tenant pays €9,043/month for a 3-bed. If that rent depends on furnished, corporate or otherwise high-service positioning, turnover and management may be much heavier than a standard long-term model assumes. The rent basis needs to match the operating assumptions.
 
Agreed with Tariq. A high headline rent can be real and still produce uneven cash flow. I’d model a change of tenant as lost rent plus preparation and reletting costs, not vacancy alone.
 
Have you entered property tax as a separate line rather than burying it in general expenses? The amount and treatment can depend on the property and ownership circumstances, so this is where I’d get Milan-specific confirmation before relying on the net yield.
 
For me, the test would be a stressed net yield above 5%, calculated without appreciation. I’d reduce the expected rent, extend the vacancy period and spend the larger repair reserve in the same year. If the deal only clears 5% when everything behaves normally, that would not compensate me for a single-property risk.
 
Financing is another fork in the analysis. If debt is involved, show the return both unlevered and after financing. Otherwise a decent property yield can be overwhelmed by interest costs or refinancing sensitivity.
 
Insurance deserves an actual quote tied to this unit and intended rental use. The premium is only one issue; deductibles and what remains the owner’s responsibility affect the reserve too. I would not use a broad market estimate for a €1,247,000 condo.
 
Thanks all. The biggest weakness is now clear: I have not yet separated common-building expenses by who ultimately pays them, and the €9,043 rent needs stronger support before I treat it as durable. I’m going back for the expense history, information on planned shared works, a property-specific insurance quote and better evidence for achievable rent. I’ll rerun the downside case before considering financing.
 
That order makes sense. Until the rent evidence arrives, I’d treat €9,043 as the upside case rather than the base case. Build the base from the most defensible comparable rent, then see whether the purchase still works after nonrecoverable condo costs and realistic turnover.
 
Keep the yield calculation simple and visible: annual collected rent minus vacancy, management, nonrecoverable building costs, tax, insurance, maintenance and reserves, divided by €1,247,000. Acquisition and financing costs can then be shown separately so they do not disappear inside one percentage.
 
Ignoring appreciation is appropriately conservative, but it does not solve concentration risk. A large amount is tied to one unit, one building and a narrow tenant pool. I would require more margin than for a similarly yielding diversified investment, even if the physical condition is excellent.
 
Nadia, also calculate the break-even monthly rent after all fixed owner costs. That number will show how much room exists below €9,043.
 
Don’t overlook entry and eventual exit costs when comparing this with alternatives. They are not part of annual net operating yield, but they affect the total return, especially if the holding period changes. Get local figures for your ownership structure rather than inserting a generic percentage.
 
I’d also run one year with both tenant turnover and major shared-building expenditure. Bad events do not politely arrive in separate spreadsheet columns.
 
At this point the decision hinges on three documents or estimates: credible rent support, itemized building expenses and the insurance quote. Once those are available, run base, reduced-rent and combined-stress cases. If only the optimistic case reaches the required net yield, the 8.7% headline is doing too much persuasive work.
 
A late thought on the insurance point: compare the quote with the building’s own coverage and identify gaps or overlapping assumptions. The practical question is not merely the premium, but which losses and deductibles could still fall on the owner. That amount belongs in the downside reserve, not in a footnote.
 
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