What Is the Real Return of a Property Investment in Milan?

One of the most common questions we receive from clients is deceptively simple: "What is the real return of a property investment in Milan?"

Understanding the real return of a property investment in Milan requires going beyond simplified yield calculations.

Misconception

At first glance, the answer appears straightforward. A widely used approach is to take the annual rental income and divide it by the purchase price of the property. It is a quick calculation, easy to grasp, and often used as a reference point. In reality, this method only captures a fraction of the picture.

A property investment is not defined solely by what it generates, but by the relationship between the total capital deployed and the net income that remains after all costs have been accounted for.

Formula for acquisition

When acquiring a property in Milan, the purchase price represents only the starting point. A series of additional costs must be considered to understand the true size of the investment. Agency fees typically stand at around 4% plus VAT. Purchase taxes, for a standard one-bedroom apartment, generally range between €6,000 and €8,000. Notary fees are usually in the region of €2,000. Taken together, these elements redefine the actual capital invested. For this reason, any meaningful evaluation of yield should be based on the total investment rather than the nominal purchase price.

Formula for rent

The same logic applies once the property is rented. The monthly rent does not equate to net income. Ongoing costs gradually erode the apparent return. Among the most relevant are the IMU, the annual property tax, which for a typical one-bedroom apartment in Milan tends to range between €1,000 and €1,500, and the taxation of rental income, commonly set at 21% for individuals under the cedolare secca regime. Only after accounting for these factors does the real net yield begin to emerge.

At this stage, it becomes essential to distinguish between two fundamentally different approaches: long-term rentals and short-term rentals. While both belong to the same asset class, they operate under different dynamics and produce different types of returns.

• Long-term rents formula

Long-term rentals represent the most traditional and stable form of investment. They offer continuity, predictability, and relatively low operational complexity. However, once all costs and taxes are properly considered, the net annual yield in Milan typically falls within a range between 2% and 4%. This figure often contrasts with initial expectations, particularly for those approaching the market with simplified assumptions.

• Short-term rent formula

Short-term rentals, by contrast, are frequently perceived as significantly more profitable. The reasoning is immediate: a property rented at €250 per night suggests a potentially high monthly income. In practice, the structure is considerably more complex.

Short-term rentals come with a layered cost structure. In many cases, management is handled by professional operators, whose fees typically range between 25% and 30% of the revenue. On top of that, there are ongoing operational expenses such as cleaning, laundry, guest supplies, utilities, and condominium costs. IMU still applies, and all revenues are subject to taxation. In addition, online platforms charge commissions of around 20% on the booking value, further impacting overall profitability. As a result, the initial perception of high gross income is progressively reduced once these elements are taken into account.

In the most common scenario, where the property is professionally managed, the net annual return typically ranges between 4% and 6%.This makes short-term rentals potentially more profitable than long-term ones, while also introducing a higher degree of operational complexity and variability.

Taxation principle

There is also a structural aspect that is often misunderstood, particularly by international investors. In Italy, real estate follows a clear taxation principle: income is taxed in the country where the property is located. This means that, regardless of the owner’s fiscal residence, revenues generated from a property in Italy are taxed in Italy.

Final thoughts

A comprehensive evaluation of a real estate investment in Milan should also extend beyond annual income. Historically, the market has shown a steady level of capital appreciation, which over the long term has tended to average around 2% per year. This component, often overlooked, plays a meaningful role in the overall return profile of the investment.

Equally relevant is the level of liquidity offered by the Milan market. Compared to many other real estate contexts, Milan stands out for its speed and depth of demand. Properties that are correctly positioned in terms of pricing and location tend to resell within relatively short timeframes, making the asset more liquid than real estate is often perceived to be.

When these elements are considered together, a clearer picture emerges. Real estate investments in Milan can represent a highly attractive opportunity over the medium to long term. However, this potential is fully realised only when the investment is approached with a precise understanding of its structure.

The difference between a perceived return and a real one lies in the ability to evaluate every component with clarity and discipline. For investors who want to navigate this complexity with clarity, working with a property finder in Milan can make a significant difference in both risk management and overall return.