Buy-to-let Investment In Estonia

Below we list some of the main features of buy-to-let investment in Estonia and provide useful tips on what to consider when sourcing your rental property.

An established rental market - although many Estonians are now in a position to purchase their own properties, quality rental accommodation both in the main cities and in tourist resorts is still in very short supply, giving rise to a ready market for your buy-to-let investment.

A high demand for rental accommodation in prime locations, eg. Tallinn city centre and Parnu seaside resort, provides a strong market for buy-to-let investors: already there is a massive shortage of hotel accommodation during peak summer periods, to such an extent that it is sometimes impossible to find a hotel room. Additionally, increased average wages of some 7-10% per year - way above inflation - mean that locals are now in a better position to rent out top-notch property that was previously beyond their means.

A strong tourist market from Scandinavians - the country’s relatively low prices - often 300% lower than in Finland - are highly appealing to most visitors. GBP 15 will buy you a meal for two and beer will set you back just 50p. This undoubtedly gives Estonia added appeal as a holiday and investment location.

Rental yields reach at least 6% p.a. which suggest a reliable rental market in which to operate your buy-to-let investment strategy.

Easy availability of mortgage finance is good news to purchasers. The affordability and availability of home loans from Estonian banks (locals can borrow up to 95% of the property value) is currently fuelling demand for property in Estonia, providing buy-to-let investors with a ready and growing market when they eventually wish to sell on their properties.

Low interest rates at around 4.25% for 30 years, or up to 65 years of age are the norm. from Estonian banks.

Low prices - for a small investment of, say, GBP 10-15,000 for off-plan units valued at around GBP 35-40,000, you can reap the rewards from a buoyant market while financing your investment with your tenants’ money.

Steady capital growth of 10-12% p.a. In 2007, the Estonian economy produced an impressive GDP of 7.1% with inflation of 3.7%, indicating an investment climate that will continue to attract growth in many sectors.

Tips for success

  • Ask yourself whether you intend to rent out the property on a long or short-term basis. This often depends on how much you wish to use the property for your own use.
  • Short term holiday lets can appear very attractive initially, but be wary of calculating profit by simply multiplying those high weekly rates by number of weeks in a year. You will have empty periods during the year, taxes to pay, and maintenance and rental management costs as the property must be prepared for each new arrival. Do your sums and be realistic about the income you can expect from letting.
  • Long-term lets provide a more regular source of income, but the monthly rates when compared to a short-term holiday let, will be lower. Of course, this option is not suitable for those who wish to use the property from time to time.
  • Be clear from the outset on your reason for buying: if you aren’t relying on extra income to meet your monthly mortgage repayments, and you are happy to rent out the property occasionally, you will probably want to find a property that meets your personal requirements.

    However, if you need regular income to meet mortgage repayments, you will need to buy with your tenants firmly in mind. If you are aiming at tourists, think about access to airports, beaches, sports facilities and restaurants. If you are looking at long-term rental, consider access to places of work: a rural retreat will not be high in demand for tenants who work in a city and take their children to school.
  • Do your homework before committing to a purchase by asking local agents and other landlords about demand and rental rates in your area. It is often a good policy to check out who else is buying in your block or area. Are they mostly locals wishing to live there? If so, this is a good sign as you should have a clear exit strategy, ie. selling to the local market, and not too much competition from other buy-to-let investors like yourself, looking for tenants.

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