Looking for some feedback on my rental

[Michael Gib]

Hi everyone!

This is my first post here so apologies if i have posted in the wrong area or formatting is wrong or anything else, i'll learn i promise!

I'm hoping seasoned professionals can give me a second opinion on how my first rental property is looking like. Some background:

My local market is Gibraltar, a small British colony in southern Europe. The territory is very small, only about 7 km2 (yes seven squared KMs makes up the entire country!) so space is scarce and property comes at a premium. The local market has been on the up for a number of years and prices now are at a level comparable to London UK. 

I bought a 1 bedroom apartment on plan 3 years ago with a view of renting it out once the unit was completed. The purchase price for the unit was £324k 3 years ago, and i have just got it valued as part of my mortgage application now at £382k, a decent appreciation in the time frame. Comparable apartments are renting out for £1800/month + and the supply on the market is not meeting the demand. Our market has a high number of workers who work in our local industries (financial services / online Gaming mainly) and there is simply not enough housing available so a large number of them live on the other side of the border in Spain.

My numbers currently look as follows:

Monthly mortgage payment (70% LTV) £1,114

Monthly Rental Income £1,800

Property Costs

Insurance £20

Maintenance £90

Management £90

Vacancy £90

Rates/Charges £170

Total Monthly Cost £460

Property Cashflow £226

On the face of it my return is very small for the amount of capital i could extract should i sell the property. My annual cash-on-cash return currently sits at 2.7% however my equity keeps growing as house prices keep rising.

And then there is the absolute circus that is Brexit and the uncertainty that it has brought to our local market, no-one really knows what effects this will have on our territory however this does not seem to have slowed down the real-estate market in the last couple of years.

Should i sell this property, take the cash and run away or is this rate of return in a HCOL area acceptable? This is a question that i ask myself frequently, especially since we do not have any capital gains tax here, so all that equity gain would be straight up profit. On the other hand i want to grow a portfolio of passive income to be able to one day quit the day job, but at these prices it's going to be hard to build a large enough portfolio of cashflow positive properties..

Thanks,

M.