Apartment prices are rising, but the demand for them is still high. Housing for a quarter of a million people is soon to be built in Prague – 116,000 apartments in a total of 752 projects are planned. Although the pandemic has slightly moved the real estate market, it seems that everything is returning to normal and interest in apartments will continue to rise. Is it possible to say that buying an apartment for investment is always a good idea, or does there have a catch?
Buying an apartment is generally more of a less risky investment. It usually makes sense to those who are not interested in active investing and are only dealing with their own housing. Among Czechs, there is an opinion that it is better to repay a mortgage for your own housing than to pay "into someone else's pocket". It's simple math. After repaying the mortgage, the property will remain with me, I can even easily earn on it if I sell the repaid apartment or apartment with a mortgage to someone else. But when I leave the lease, I am left with only deep pockets and I am looking for another rental apartment.
With current low mortgage rates, there is often almost no difference between mortgage repayment and rent. More than half of Czechs live in their own homes,even though it seems that the post-communist generation is no longer so attached to their own housing.
Maybe you are one of the lucky ones who have inherited their own home, have generous parents or excel at work and can afford to buy an apartment for their own housing. But what to think about when you have your own housing taken care of and do you want to buy your first apartment for investment?
10 or 20% to start with and break the piggy bank
If you're not in control of cash, you're going to pick the best financing. A chic financial advisor may be able to conjure up a "100% mortgage" for you. A building savings loan or a consumer loan from another bank will combine with an 80 or 90% mortgage. But the path to such a solution is at least thorny, and with two loans on your neck, a person is still a little harder to breathe. Much more often, apartments are financed by 80 or 90% mortgages, but you have to pay the remaining part of the price of the apartment from your own resources. If you are buying a new building, you will also have to buy a kitchen unit, which is not normally in the project standards. With an older apartment, you will not miss minor, but sometimes even major repairs and modifications. You will have to accept that the purchase of the apartment itself usually does not end there.
Apartment prices are rising, but so are maintenance costs
For older houses, you will not avoid higher maintenance costs. It is saved on insulation, replacement of windows, repair of the roof or façade. The lower purchase price of apartments in older houses is often redeemed by fees that increase over time. You have to count on the fact that having an apartment costs something. If you fail to rent it right away or you have an outage in your lease, the fees to the repair fund go straight out of your pocket. It is therefore important to count on them in the financial plan. It is best to think about it before the purchase itself and not to be surprised by it.
Problems with tenants, cooperative and SVJ
You bought the apartment, everything is repaired and ready for the tenant. Now you can do everything with the left back. Or not?
Photography, texting of the advertisement, answers to interested parties, tours and contracts. Handover protocols, deposits, energy transcription and risking vacancy of the apartment. These are all things that will not be overdue. A real estate agent can solve something for you, but you can't avoid a few face-to-face meetings anyway. The icing on the cake is the termination of the lease agreement and the departure of the tenant, after which you can discover the apartment in a desolate state. Dirty walls, scratched floors, destroyed appliances in the kitchen. And what about only if the tenant stops paying? Disputes with tenants are quite frequent and are difficult to resolve. Clearly, not returning the deposit may be one of the ways to compensate for the damage, on the other hand, the deposit may not cover the damage caused. Due to repairs, there will be a loss of rent for a month or two, and your costs are a bit higher.
Owning an apartment often means the obligation to attend meetings of a cooperative or association of owners. In addition to money, taking care of the apartment costs you time, whether it is the one you physically spend taking care of the apartment and things associated with it, or the one during which you think, plan, phone and arrange the care of the apartment. Managing an investment apartment simply swallows tens of hours a year. Try to compare your income from the apartment with your hourly rate. Does it pay off, or does it make sense to spend a few more hours at work?
Try it out
Buying an apartment for investment can mean a lot of worries. It's not for everyone, you have to enjoy it. But what if they don't enjoy it or it's just not worth the effort? Real estate is an interesting and fairly stable investment opportunity and it would be a shame to throw a flint in the rye. For example, in larger cities, external companies will help you manage your investment apartment. For their services, they take a share of the rent and you do not have to worry about anything.
But that's not all. It is also worth exploring lesser-known ways to invest in real estate. You don't always have to take out a loan and look for tenants. There are various real estate trusts that buy real estate into their portfolio and allow you to invest in them carefree and flexibly.
One of them is Investown, the fastest growing Czech platform for mass financing of real estate projects. In the application, you select apartments, houses or commercial real estate in a specific location, invest from CZK 500 and for the duration of the investment (usually 12-60 months) you receive a profit from it. Appreciation starts at 7% per year. You can also sell the investment to tens of thousands of other users and later even increase its price.