5 Tips To Maximize Your Return On Investing In European Property Investment
At a time when everyone sees to be chasing the next hot spot for property investment, where should you invest, why, and how will you get the best returns on your money? All is revealed here …
Romania is increasingly understanding the accolades as one of the best property investments in the world. PriceWaterhouseCoopers ranked Romania as the most profitable property investment in Europe in January 2006. They estimated a 414% return on investment over the next decade, which works out at approximately 17.8% annually, a reasonable return. Coliers International, one of the world's largest real estate consultants rated Romania as the second most lucrative investment in the world in July 2006. Given its rapidly expanding economy, booming tourism, impressive foreign investment, and its EU membership from 1 January 2007, Romania possesses the attributes to be a thriving property investment for the astute investor.
Whilst the ingredients for a lucrative investment are there, how exactly, do you maximize your profitability from am investment in Romania? Here are 5 top tips to achieve a command return on your money and possibly exceed the promising forecasts from PriceWaterhouseCoopers and Channel 4:
1. Leave the capital and go for a secondary city.
Bucharest is a sound investment and the large majority of experienced foreign investors concentrate the bulk of their investments in the capital. However prices in the capital have varies exponentially over the last three years, with most property doubling in price. Prices will continue to rise, but at a slower pace than that of many secondary cities in Romania. Here is a large number of the country's largest developers and investors are moving gradually to other major cities in Romania, such as Cluj, Constanta, Timisoara, Iasi, and other locations. These are areas of strong growth and while the rental yields will generally be lower than in Bucharest, the capital growth can be substantially higher.
2. Buy off-plan very early in the development process
Most development projects take 12-18 months to complete. If you buy very early in the development process you will benefit from one or two price increases during the property's construction. The developers typically raise their prices to align with the soaring market prices and to allow for the increasing material and labor costs. If you buy at the beginning the development you can see an official 15-25% price increase during the construction phase.
3. Leverage your money using bank's money
Mortgages for foreigners are still difficult to come by and fairly expensive. There are 4-5 banks that offer mortgages to foreigners and the interest rates range between 6-10%. If you get a rate of 6.5%, which is comparable to the rates in the UK, there are still considered bank arrangement fees, up to 3% of the property value. Even at these costs it is still very lucrative to leverage your investment with bank financing in Romania. However, if you can raise finance against a property in the UK or even better, in Europe where rates are lower, your investment will be even more profitable.
4. Invest in land
Land investments have consistently outperformed property investments in Romania over the last three years. Depending on your available capital and preferred investment duration, buying land at low cost in strategic locations can bring stunning returns. As more and more property is being built, less and less land is available and of course this will increase land prices faster than property prices. Beware though, this is not an investment to take lightly, you need to have a very accurate knowledge of the market, especially prices, locations, zoning plans of the local authorities, etc. Only venture in this direction with reputable and reliable real estate and legal advisers.
5. Invest in renovation projects
Renovation projects, whether in the capital, a major city, holiday resort or a historic town can be a very lucrative investment. The costs vary depending on the location, type and size of the project, but impressive returns can be achieved in a matter of weeks. Should you aim for low cost renovation projects, head for a small town or a well-known village in a popular tourist area with good access. Here you can start with the lowest possible capital, often under £ 10,000. Beware the weakness of such a location though: the resale market may be very slow and it could take you a significant amount of time to sell your renovated property.