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Often an investor enters the market with a small amount of money, which is not enough to buy a high-quality object. In such a situation, it is a great temptation to choose the most budget option, however, most likely, the buyer will be disappointed. Such facilities almost always have low liquidity, it is difficult to find a tenant for them, they will not be able to sell profitably. It is also possible that real estate has hidden problems that the foreigner does not know about.
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It is an often case, when people want to buy a house in Cyprus for rent, but only have €100,000-150,000 on their hands. With such a budget, you can only find an apartment poor quality in an old building. Buyers think that this is a good investment, but then they can't rent it out, because tourists want to relax in a beautiful and tidy house. Sometimes it turns out that a similar apartment is rented in the same building, but after renovation, and its owner receives twice as much.
In Finland (and so in other places), it is standard practice to carry out major repairs of secondary buildings at the expense of property owners. And if the owners' meeting decided, say, to update the facade or change the pipes, the apartment owner will have an additional monthly payment for many years. The seller may know about this and therefore put a suspiciously low price. And if the buyer does not take into account the upcoming repairs, the financial plan will collapse.
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We had a client who had previously bought a cheap apartment. He calculated that when renting it out, he would receive 4% per annum. However, a replacement of the water supply system was planned in this building beforehand, and a year after he purchased the apartment, the cooperative took out a loan of €1.5 million from the bank. The loan was divided into all owners, it turned out to be € 700 per sq.m. For the client, the total amount of debt was €41,000. Now he has to transfer an additional €300 per month for about 12 years. Due to this, his already modest income was halved, and it became clear that there was no point in this investment. Unfortunately, he did not consult with an expert at the stage of choosing a property and made a typical mistake - he did not study the renovation plan. Such plans in Finland are drawn up for five years ahead, they can and they must be checked before making a purchase.
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We always advise our clients to analyze both the project as a whole, and the specific selected unit. For example, in Alanya and Antalya, in complexes with hotel infrastructure, apartments with views of the interior are more expensive, but they are also valued higher. It will be easier to sell them later.
A foreigner who spends a couple of weeks in the country looks at real estate through the eyes of a tourist. What seems attractive in the first days often recedes into the background with permanent residence. For example, the first thing that people pay attention to when looking for accommodation in a resort is proximity to the sea. However, this is not the best option for living all year round.
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Those who choose houses on the first line do not take into account two following circumstances. Firstly, it will not be very cozy in winter. In Cyprus, we have cold winds blowing in January and February, and residents' heating costs will increase significantly. People will have a beautiful terrace overlooking the sea, but they will not be able to rest on it because of the cold. Secondly, the sea view itself is not always good. In summer, the sun blinds the eyes all day and additionally heats the house, so you need to keep the curtains or blinds closed all the time. At night, the sea turns into a dark spot, so you won't get a beautiful view. At the same time, housing by the sea is significantly more expensive than at a distance of even 400-500 meters. Therefore, a house on the first line is a good option for short-term rental, but if you are counting on permanent residents, it is better to buy more spacious housing a little further away for the same amount.
Often people try to buy a house as if for themselves, but at the same time get benefits. It turns out unsuccessfully.
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There was a case when a person bought an apartment with our company to reside in a quiet place, but not far from the center of Alanya, preferably without infrastructure and inexpensive. We choose a suitable option in the upper Oba, away from the sea, a small house without infrastructure, off-plan stage. About a year has passed since the end of construction, and the investor told us that he wants to sell the property and earn 25-30% on it. But this is unrealistic. Yes, the value of his real estate has increased, but this purchase goal was not announced to us at the selection stage, and we were guided by other criteria. If he had told us in advance, we would have considered completely different options.
Changing the purpose of the property or making a redevelopment are reasonable steps that allow you to increase the profitability of real estate. However, you need to know the local legislation well and understand the design features of buildings before doing so. Otherwise, unpleasant incidents arise.
For instance, in Poland, it is a common practice to buy a large apartment and divide it into several studios with separate entrances and bathrooms. The legislation allows the transfer of wet areas, but there are a number of other restrictions.
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In August, we had a client who came to Poland, went everywhere by himself, studied everything by himself, and eventually chose an apartment that he planned to divide into five studios. This requires a certain type of ventilation. He asked a question about it in the sales department and got an answer that suited him. We would first pass all the information to the architect, get the approval and only then conclude a contract. But the client did not consult with us, did not double-check anything, took the sellers at their word and made an advance. We were not present at the deal either. When we received the documents, our architect said that everything in the house was not at all as required. As a result, the contract had to be terminated, and the client had to fly to Poland again and start all over .
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We had a client who purchased a folding chair and decided to open a gym instead. Before buying, he did not study the documents, the language barrier took its toll. Therefore, I did not know that the charter fixed the purpose of using the premises. The error was discovered after the owner found a tenant and the gym started working. It turned out that hygiene and safety requirements were violated: there must be a ventilation system and a fire exit in such rooms. The owner had a choice: terminate the contract, lose money and convert the premises back into a warehouse, or fulfill mandatory requirements. He calculated that the warehouse would yield less profit than the gym, and invested in a fire exit and new ventilation.
If a buyers decides to abandon the services of realtors or use them at a minimum, it can play a bad joke in the future. It is not for nothing that real estate specialists themselves often look for housing with the help of agents. Incidents can be different. For example, you can ignore the competitive environment or run into outright deception. With a remote transaction, these risks only increase.
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There are unscrupulous developers in the Emirates who can overestimate the profitability by an order of magnitude and promise 20%, although in fact it will be only 2%. Buying without the help of local players may get you tricked. Buyers ask for for help when it happens, want to sell their property, but how? There is an incredibly inflated price, for example, a person bought for $300,000, and the market price is only $100,000. From the real price there would already be a normal yield of 6-7%. Unfortunately, we see many similar cases.
Evgeny recalls other typical situations when sellers in Dubai deceive buyers. In particular, he recommends to come and view the object personally, because purchasing by pictruere may differ from reality for a buyer, who expected to hand over the property immediately after the transaction, instead of spending time and money on repairs. When making off-plan transactions, it is important to know the specifics of the area, and that's when you need a good agent in place.
A few years ago, when Dubai introduced VAT on all new buildings, with the exception of housing, some developers recommended to transfer apartments to the category of residential real estate. Those who did so lost heavily, because the objects lost about 20% in price. It is clear that this was a one-time case, but in another situation there may be something similar. Therefore, before making a decision, it is important to consult with a lawyer or an experienced realtor.
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Buyers with small budgets are especially suspicious of everything, they are afraid of deception and because of this they themselves do not say everything a realtor needs to know. You can understand them: they are afraid of losing the savings of a lifetime. But you can't do anything without an expert anyway. In order not to miss the choice of a realtor, you can contact several agencies at the very beginning and ask the same questions everywhere. Formulate them clearly and ask in writing, by e-mail. And then compare the answers. Yes, you will need to spend time, but the results will already make it clear who is giving full information, and who is not telling you something or does not know. After that, it will be possible to reasonably choose one person and start trusting them.
Sometimes a good ratio of income and expenses can be explained by an unfortunate place, where real estate is cheaper. And even the presence of a good tenant may not save the situation.
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The investor have bought a shed, which was located near the city of Oulu, far from the major centers of Finland. This facility was rented by the police for the storage of confiscated items. The property gave an excellent yield: 8.2%, no doubt about the reliability of the tenant, it's the state itself after all! However, after a couple of years, the police found a more profitable premises and moved. More than a year has passed since then, but the owner still cannot rent out his object, because it is very difficult to find a tenant in this location. During the downtime, the average yield has already approached the usual indicators for Finland. The client turned to us for advice, and we advise him to find a tenant, even if not the most profitable, for example, giving 3% yield per year, and sell with him. Because the presence of a tenant will be the main argument in the eyes of a potential buyer. And for further investments, we recommend choosing places closer to the south of Finland, where business activity is much higher.
Not only the location, but also the immediate environment of the object matters. If this is one of the same type of apartments in a giant complex, it will not be easy to successfully rent or sell the object. This happens regularly in Thailand with inexperienced investors.
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We are often contacted by customers who have bought an illiquid property. Usually it is an object in a bad location. Another option is that a person bought an object in a complex with 700-800 apartments and almost all studios, and now wants to resell it profitably. But how can you resell with a profit, when you have several hundred competitors are no different? Even during the pandemic, when there are much fewer tourists in Phuket.
It is important to understand not only the current situation in the location that you are interested in, but also the plans for future development of the territory.
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A real example: a man have bought a villa in Mahmutlar at a distance from the sea, and a multi-storey complex was built on a neighboring plot, and now all the owners look down on his house, and this small structure itself is surrounded by tall buildings like it's a huge fence. It is unlikely that the owner will feel comfortable in such a dwelling.
Often investors are convinced that it is most profitable to buy an object before the start of construction or at an early stage, because by the time of delivery it will significantly rise in price and investments will bring maximum income. Its is true for some markets. For example, in Turkey, this practice is considered reasonable. But there developers receive cash from the buyer and immediately put it into circulation.
On the contrary, in countries where buyers' funds are frozen until the moment of acceptance of the object, developers have no reason to discount early investors, so they will not be able to gain on this. Does this mean that buying at the pit stage is meaningless? Not at all! At the start of sales, the buyer has the maximum choice and can choose the most "delicious" objects. But in general, the right moment of purchase is often determined by completely different criteria.
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In Dubai, profitability does not depend on the stage of construction, but on the area and on the project itself. Here it is important to look at the history of price changes, take into account the stage of development and plans for future development. In developed areas, such as Dubai Marina, Downtown, you will no longer receive additional value due to the upcoming development of the area. Therefore, you can buy at any stage, but the moment of sale will need to be accurately calculated by looking at the project itself. Somewhere it will be at the acceptance, somewhere before, and somewhere after.
The situation is similar in Poland: buying at an early stage does not guarantee profit by itself. Yes, after the completion of construction, the object will be more expensive to build, but not at the expense of special prices from the developer. Just during this time, real estate in the country will rise in price in accordance with the general trend. And if you buy not an object under construction, but a secondary market property, it is quite possible that it will increase in price even more.
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More than half of the requests are aimed at the purchase of real estate at the excavation stage with the hope of reselling it profitably later. However, this will not work: the buyer's money is sent to an escrow account ("rachunek powierniczy" in Polish), so it makes no sense for the developer to lower prices. It often happens that apartments in a finished house and in a newly started construction site cost the same. And in the last year and a half, the picture is even reversed: in a new building, the object will be cheaper than its counterpart in the pit. Because prices for building materials are rising sharply, wages are also rising, and a completely different cost price is laid for new buildings, and with it the final price. On the contrary, sometimes it happens that the building is completely ready, but several apartments have not been purchased. And at this moment, the developer is ready to make concessions, and you can make a deal at a very favorable price.
The pandemic has mixed all the cards. What was profitable yesterday is starting to make losses today. Therefore, investors are forced to constantly monitor the situation and, if necessary, change the purpose of their facilities. By the way, the prospects of using real estate for other purposes should also be considered in advance.
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We always promote the idea of investing in retail space with tenants. This sector of commercial real estate has established itself as the most reliable. One of our clients invested in a cafe in Ljubljana, but due to the pandemic payments became irregular, and other tenants could not be found. After the investor contacted us, we converted the premises into a retail facility and leased them to a chain shoe store. In another similar case, we rented the premises for offices. With this solution, the profitability does not fall, but stabilizes. Investments in the hotel business also ceased to be interesting with the beginning of the pandemic. One of the clients contacted us due to the fact that his hotel did not bring the desired income, and management problems began. We offered him to sell the hotel for separate apartments, and he successfully got rid of the problematic object.
We talked to realtors from different parts of the world, but their opinion is the same: investors have mistakes, which can be very expensive. At the same time, most of them could have been avoided if the buyer had consulted an expert of the local real estate market, an architect or a lawyer in time. It turns out to be more profitable than correcting the error later.
