Economic growth is triggering high demand in Romania’s buy-to-let market. Below are some factors to consider when researching your buy-to-let property investment in Romania.
The term "Buy-to-Let" simply means the purchase and ownership of a property through the normal purchase procedure in Romania and, when completed, the owner seeks to rent this property out for a regular income, often exceeding annual mortgage repayments.
The increased presence of multinational companies in Bucharest, such as GE, BMW, IBM, Microsoft and Proctor and Gamble, is bringing with it a strong demand for rental properties, both residential and commercial. This creates a ready buy-to-let investment market for owners of units in the new developments offering top international standards of living.
Successful buy-to-let investors have been achieving 5% net rental yields in prime locations of Bucharest. Meanwhile, growing interest in the nation’s ski and beach resorts means an interesting and emerging market for investors of buy-to-let properties within Romania’s tourism industry, the fourth fastest growing tourism sector in the world, which is projected to grow some 7.9% per annum from 2007 to 2016.
Purchasing a property to let in Romania will of course involve careful consideration as to whether or not the property is ideally located for your potential renters. Careful analysis will need to be done on matters such as local amenities and accessibility to airports as well as what type of tenant will be using the property. Early investment and the correct formula to suit your market will bring good returns on your buy-to-let property in Romania.
John decides to purchase an investment property and he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3,000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid). Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months high season he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
Now we assume that John decides to go on a short term rental strategy maximizing his income over the high season. He easily rents his property for 3 months during the high period earning €2,000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 months only.
Total rental income = €13,800 after subtracting the €5,772 mortgage repayments John has made a profit of €8,028.
* In this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the internet this is very achievable.
The final decision to be made by the "Buy-to-Let" investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.
Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.
The “Buy-to-Let" strategy is an important formula to calculate correctly as even in a very busy market there is still competition. In order to maximise occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.
This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage. Meanwhile it is providing off-peak accommodation for your personal enjoyment.
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