How many apartments do I need to live off the rental income?

The idea of living off rental income has become one of the main goals of real estate investors. This is because it offers the possibility of generating passive income and enjoying greater financial freedom, as long as you keep in mind how to avoid the biggest mistake when investing in rental properties.

However, achieving this goal is not as simple as just acquiring a few properties. How many apartments does an investor need to generate enough profit to live off the rental income? To answer this question, it's essential to understand several factors that directly affect the profitability of these investments.

What does it mean to live off rental income?

This is the first question that, as investors, must be clear. When we talk about living off rental income from properties, it’s directly related to generating enough passive income to cover living expenses without relying on a traditional job.

In the real estate context, this means that the income generated from renting properties enables maintaining a comfortable lifestyle, a financial stability that covers needs like the mortgage (if any), operating costs, and even building a cushion for unforeseen expenses.

The benefits of this strategy are many. On the one hand, you generate a stable source of income, while on the other, properties have the potential to increase in value over time, thus generating long-term returns. With this type of investment, you gain more free time while also accumulating wealth as your properties appreciate in value.

Factors that determine how many apartments you need to live off rental income

To determine how many apartments are really needed to live off rental income, several factors must be considered: from how much you expect to earn to keeping in mind the operating costs of each property while evaluating the net profitability you obtain from each one. These factors are broken down as follows:

Necessary monthly income

The first step is to calculate how much monthly income is needed to cover the property expenses. This will vary depending on the person, the location of the apartment, lifestyle, and other personal costs (debts, financial goals, etc.). 

On average, you might need between 2,000 and 5,000 euros per month to cover expenses such as housing, food, insurance, transportation, and entertainment. This number can be higher if the investor’s lifestyle is luxurious or if they reside in a high-cost city.

Once these figures are clear and you understand the financial needs, it's time to start calculating how many apartments you need to cover the income through rentals.

Average profitability of a rental property

We must consider that the profitability of a rental property is one of the most important indicators when determining how many apartments are needed to live off rental income. Profitability is typically measured as an annual percentage, which is calculated by dividing the income by the total cost of the property.

However, to get this figure accurately, the most important metric is net profitability, which accounts for all the expenses associated with the property. These expenses include taxes, insurance, maintenance, municipal fees, and possible vacancy periods.

Expenses associated with renting properties

To correctly calculate net profitability, it's essential to consider all additional costs. These include the following:

• Maintenance - All properties need regular maintenance to remain in good condition. This includes minor repairs, periodic renovations, and unexpected emergencies.
• Taxes - You must pay taxes on rental income, as well as property-related taxes (IBI, municipal fees, etc.).
• Vacancies - There's always the risk that the property won't be rented during certain periods, which affects your income and profits.
• Commissions - If you work with an agency to manage the rental of the property, keep in mind that they will charge a commission, which will also impact your net profitability.

With these elements in mind, you'll be able to make a much more accurate calculation of how many apartments you need to achieve financial freedom and a favorable economic balance.

Strategies to maximize rental income

Once all the basic expenses and income are defined, there are strategies that can be applied to maximize rental income. In fact, these can reduce the number of properties needed to live off rental income. The most effective strategies are as follows:

Investment in high-demand areas

The location where you invest becomes one of the most decisive factors in a property’s profitability. High-demand rental areas, such as city centers or areas near universities or business centers, tend to offer better returns, although they can also involve significant expenses. However, they are favorable not only because they have a more active market but also because they maintain higher rental prices and shorter vacancy times.

A good strategy is to research local markets and, by doing so, anticipate growth in certain areas. Buying in developing neighborhoods or near future infrastructures (such as new shopping centers or public transport lines) can increase both rental prices and property value in the long term.

Tax optimization

Tax optimization is another of the most effective strategies to maximize your rental income. There are tax deductions related to rentals that can help you reduce your tax burden, such as deductions for maintenance or improvement expenses, insurance, and even mortgage interest. Good tax advice is crucial to taking advantage of all available benefits.

At Inversa, we understand the great importance of optimizing investments to maximize profitability. That’s why, through our investment model, we offer options like crowdlending, where you can diversify your investment portfolio without having to manage physical properties and generate passive income with solid, sustainable projects.

Risks and challenges of living off rental income

Investing in properties to live off rental income has numerous benefits, but it also involves risks and challenges that investors must be aware of and manage. Below, we review some of the most common risks and challenges:

Vacancies and delinquency

One of the biggest risks when renting properties is vacancy, those periods when the homes are not rented. We must consider that these time gaps directly affect monthly income, so it’s essential to have an emergency fund to cover these months.

You also can't overlook the risk of delinquency from tenants who don’t pay, as this can pose a problem. Conducting a good tenant screening process and having non-payment insurance can help mitigate these risks.

Property maintenance

Properties require continuous maintenance, both to maintain their value and to comply with local regulations. This is a cost that’s not always apparent in the initial calculations, but it can significantly affect long-term profitability. In fact, it’s important to remember that property maintenance involves a time commitment that many investors are unwilling to take on.

At Inversa, we don't lose sight of these challenges, which is why we offer investment solutions in assets without the need to deal with these operational issues. Our crowdlending options allow investors to generate returns with fewer complications, providing access to carefully selected projects that offer attractive profitability without needing to directly manage properties.

In summary, is it possible to live off rental income?

Living off rental income is possible, although it requires meticulous planning, a well-defined strategy, and active risk management. The number of apartments needed to live off rental income will depend, as we’ve outlined earlier, on your personal financial situation, the income you expect to generate, and the profitability of each property.

For many investors, combining real estate investment with other forms of passive income generation, such as the crowdlending offered by Inversa, could be the key to achieving financial freedom. All this without relying solely on managing physical properties.