Invest in income generating residential property

When considering investing in residential real estate you are considering investing in one of the most consistent and most profitable investments available in the market.

Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate. Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate.

Some ways, not the only, of making money by investing in real estate are:

Flip Flop: Simply said, buy a property, improve it and sell it for a higher price than the purchasing and renovation costs. This is an intensive process as you will be looking constantly for "opportunities" in the market, you will need the resources (construction workers and materials) to execute the works, you will need to be a specialist in construction and engineering and you need to sit on top of the execution. Time is here of essence as the sooner you can finalize the works the sooner you can gain your profits. In Romania the specialists have average profits of between 20 to 40% and even more. Just imagine buying a 40.000 euro property invest 10.000 euro to get it to the right standards, renovate and sell in a period of 3 months at 60.000 euros. This means a profit of 20% in just 3 months. Is this possible in Romania? Yes, it is, and people are already doing this. The biggest challenges here is to identify suitable opportunities and work with reliable construction workers. 

In case you will not be able to sell, your property will be suitable to become an income generating property by renting it out, which offers another selling point with high returns. 

Which brings me to the topic of this article:  Invest in income generating residential property!

Meaning: Invest and receive direct inflow of cash on your investment by the rents paid. Most of the time these are monthly paid rent which increases your yearly ROI.

Next to direct influx of returns on your investment you will also have a big chance on capital gains on your property. Being a hard asset: Real estate almost always has value and usually appreciates over time. For Romania we consider 1.5 to 3% per year!

While Flip Flop looks at short term gains this is not the same for Income generating assets. Investing in income generating real estate is a great idea if you are in it for the long haul, not a quick return.

Some of the matters to take in consideration when looking at income generating real estate:

Location, location, location! This general rule also applies here as you need to be attractive for quality tenants. As you are in for the long haul you do not need a tenant only now, but also in the future. Being empty will cost you money so the less time empty between tenants the better for your bottom line. Further the right location will benefit you when you, for whatever reason, need to liquidate assets. The better the location, the better the demand, the easier to liquidate!

What are the total purchasing costs? We are discussing here about your return on your investment. Many calculations made by most of the consultants are based on the purchasing value of the asset only and easily are ignored related costs as legal and notary costs, real estate agent fees, possible direct maintenance costs etc. While making your ROI calculations you will need to take these costs in consideration.

Who is the tenant? The quality of the tenant is very important and a tenant review should be part of the decision process. How well is the property taken care of by the tenant? Have payments been done regularly? Are all related costs like utilities, building/complex administration costs been paid and always paid in time? Is the tenant requiring a lot of attention and is of can become a burden taking much of your energy and time? This aspect is often overlooked. Sometimes the asset has potential, but the tenant is a "pain in the ass". In this case you might want to purchase, but will need to change the tenant.

What direct maintenance costs are required? Identify these and make them part of your negotiations.

What rental contracts are in place? What are your rights and obligations? What are the rights and obligations of the tenant? What is the "real" term of the contract? Many owners will boost about their long term contracts, while the contract states that termination can be done taking a certain number of days or months in consideration. In fact this means that the term is as long as the termination clause states. How are you covered for "future" damages?

Over what periods are the rent paid? Most of the time rents are paid on a monthly period. There are contracts where tenants have negotiated lower rents by paying more in advance. Make this part of the negotiations as future rents, also already received by the seller, are to be yours as the buyer of the asset.

What is included in the purchase? Who owns the furniture? In case owned by the landlord make sure this is registered well to avoid future conflicts with the tenant. Make sure to value the furniture well and exclude from the asset purchase to avoid paying notary fees on these. 

For Romania the returns we consider are at 6-7% gross on rents and a capital gain of 1.5 to 3% per year. Make sure to do your homework well. The highest yield now can be the lowest average yield in the future.

Keep in mind: Managing rental property can be time consuming and stressful. You need to be capable of taking care of problems with the home and deal with your tenants ability to pay and with any vacancies that might occur.

We at BLISS Imobiliare know the market very well and, when hired by you, will be your partner during this process.

When you wish to have a reliable partner who assists you and consider to work with a professional real estate agency you can call us at  +40 729 005 624 or send us a message.
You may also list your property here. Listing your property is free and you will benefit, as many others already do, of the BLISS Imobiliare reach in the market.