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Joni Vandenberghe

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Investing in real estate in Europe

Real estate still is a favorite of many to invest in to get that passive income. There is nothing like that feeling of actually being able to touch your investment. The majority of the people will invest in property in their own region. The reason is quite simple, you know the place, the housing prices, the rents. 

But what if rental yields and prospects in your country are not as appealing as abroad? What if you did look beyond your borders? What countries in Europe are appealing to invest in? First we need to agree on  a way to measure the investment climate. Not only short term but also long term.

Five factors that matter when investing in real estate

  1. The yield: based on the price you buy it. Obviously this is an important factor. After-all you do buy real estate to get a certain return.  Moldova holds the top list in EU with a 10% yield on the investment. 
  2. Political climate and stability: what is the current political climate? What is the expectation in the future? For example we see countries getting huge economic boosts when they join EU. At the same time when countries have issues with their neighbors its a rather risky investment. Cyprus is a member state of the EU, but only half of the island is. The other side of Cyprus is separated. While there has been peace for a long time, you cannot deny there is a certain risk.
  3. Pro landlord market: how long are the rental contracts? What happens if someone stops paying rent? 
  4. What are the prospects for property prices? Obviously this one is harder to predict. But there is a few indicators that can help to get you in the right direction. For example I believe an EU candidate member state has good perspectives for a rising markets, especially if the city you buy in has great potential for tourism or business.
  5. Taxes and transaction costs: these factors can lower your yield and increase the buying price. So make sure you include these in your calculations
Source: Eurostat

Five factors that matter for the property type

  1. What locations should you look at?: who hasn’t heard the phrase “location, location, location” before. Capitals tend to attract singles or young couples who are just starting their lives. They are generally more willing to do small maintenance to your home, such as adding some paint, or fixing small things that break. If you pick a touristic location it could be a more active investment if you decide to target tourists and since you are investing abroad you will need to work with a local tourist agency. Both locations have the additional plus that you could use it as a holiday destination if you are between renters.
  2. House, apartment or Studio? Obviously the advantage of the house is that you own the land. But then again when buying an apartment or studio you do own a percentage of the land you buy also.  Plus a house can leave you to sudden astronomical costs you didn’t account for such as a new roof. A new roof can cost up to 30.000 euro in some countries, and that really kills the returns on your investment. 
  3. How large should your investment be? When thinking in sqm or amount of bedrooms, my favorite is 50-70 sqm with one or two bedrooms. One additional thing I like about these sizes is that they tend to attract my target audience of renters such as singles or adults looking for something smaller after their children moved out.
  4. What maintenance costs can you expect? Everyone would like an investment where they do not have high costs that eat up your yields. For that reason I prefer apartments in small buildings. With no elevator and preferably no cleaning of the communal hallways. Balcony’s can also be expensive if they need to be renewed, plus they can up the price of the property. On the other hand they can make it also easier to find someone to rent the property. 
  5. What is the state of the building?  When investing in an apartment then do not forget to look at a few important factors. One thing is the state of the building, such as the roof. If the roof has to be renewed it can kill your yield for a year. Secondly look if there is already  a fund in place to do any repairs. Be sure to ask for the meeting notes of the last meetings (if there was any). I will always prefer to invest in a building where they do the needed investments (such as dealing with leaks) without it being excessively.

So in conclusion my personal favorite would be a 60-70 sqm apartment in a small building without an elevator in a touristic area or a capital city with good flight connections.

Five European countries to invest in

Based on the above factors, I want to share my personal favorite to invest in. I do not want to claim I am an expert, but I have done the research and these are countries I personally would consider to invest in to gain passive income.

We will for this occasion assume we are investing in a 50-70 sqm apartment as we suggested in the previous chapter.

Montenegro

Montenegro is politically quite stable, a potential member state of the EU, and has great potential for tourism, with a steady rise in the last years. Additionally, and not unimportant, the yields are fantastic with a 7% yield on the type of property we are interested in. I would check out the coastal areas here for these reasons. 

One downside is that the housing prices are a little bit unpredictable, some years the housing prices did go down, even if it was not a crisis, but generally I would say there is a steady trend up. But again, location is crucial here!

The climate is quite good for foreign investors. While you are not allowed to buy land, you are allowed to buy properties without any restrictions.

Montenegro
Gross yield7,5%
LocationCoastal
Investment climatePro landlord
Easy for foreign investors
Price per sqm1400 euro
Income tax5,4%
ProspectsEU candidate member state
Rising tourism

Moldova

While not being an EU member state or even candidate the country is political stable and has no issues with any neighbors. Tourism is not exactly booming here, however one cannot look past at the high yields that Moldova brings to foreign investors. With a 10% yield on investments Moldova is at the top of our list for top yields in Europe. Visa arrangements to go there are quite easy for most countries, plus Moldova is clearly open to foreign investors as they are willing to provide you with citizenship if you invest at least 250.000 euro in real estate.

The housing prices are not really rising much, but have at least proven to be stable for the last years.

Moldova
Gross yield10%
LocationCapital
Investment climatePro foreigners
Pro landlord
Price per sqm965 euro
Income tax10%
ProspectsStable housing prices

Romania

Romania is a EU member state with a good economical growth and a stable political climate. As a EU member state for EU members it makes it one of the most appealing countries in Europe to invest in as for EU members there is no restrictions on buying property or land. 

Property prices have dropped in the 2009/2013 economic crisis, but in recent years especially in the bigger cities they have been soaring gaining 10-15% in price showing the property market is currently booming. The question is of course for how long can the prices still rise at the current rate? Considering the economic growth I do see the prices rising for a little bit longer.

Romania
Gross yield6,07%
LocationLarge cities such as Bucharest or Cluj
Investment climatePro landlord
Price per sqm1591 euro
Income tax9,6%
ProspectsHousing prices are rising rapidly in recent years
Rental prices rose 8%-9% per year in the last 2 years

Poland

The rise of the housing market in Poland has not gone unnoticed. With Gdansk, a coastal city having a 17% increase in 2017 and continue to rise in 2018. Krakow which is known as a hotspot for tourism rose 13% in 2017. The capital also performed well with  a 6% rise in Warsaw. Not as impressive as Gdansk but still well above the average rise of prices in Europe. If anything these numbers show is that there is still opportunity out there, and it also shows promise for countries joining the EU, as Poland has been a member now for about 10 years. 

Poland
Gross yield5,5%
LocationCoastal region, touristic cities
Investment climateGood economy, neutral to landlords
Price per sqm2793 euro
Income tax13,5%
ProspectsHousing prices are rising rapidly in recent years

Croatia

With yields for rentals are a bit smaller here with just 5,43% Croatia is has the lowest yield, but the country has so much potential for popular areas.

In 2018 the prices risen so far about 4%, but some top locations such as Zagreb and the coastline have risen 7-10%, making it a good investment even not considering rent yield. 

Anyone from the EU is free to buy property in Croatia, if you are from outside the EU it depends of bilateral agreements between Croatia and your country. 

Croatia
Gross yield5,43%
LocationCoastal region, Zagreb
Investment climateNeutral to landlords, rising economy
Price per sqm1978 euro
Income tax8,4%
ProspectsHousing prices are rising rapidly in recent years

Sources

https://ec.europa.eu/eurostat
http://stat.gov.pl/en/
http://www.insse.ro/cms/en
http://www.statistica.md/index.php?l=en
https://www.monstat.org/eng/
https://www.statista.com/
https://www.dzs.hr/default_e.htm
https://www.globalpropertyguide.com

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One comment on “Investing in real estate in Europe

  1. Leuk artikel, helpt mij zeker omweg naar het zoeken naar een appartement (als investering).
    Welkom bij de FIRE Gemeenschap.

    Like

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