Buying an apartment anywhere in the world can be like booking a Ryanair flight. The headline price rarely is what it actually costs you.
When buying a new apartment in Poland it is usually delivered to you in what is called Developers standard. This requires you to fit out the property with floors, kitchens , bathrooms etc. Apart from the time it takes and the difficulty in actually getting qualified workers to do it, it costs money. Lots of it.
A normal investor has a three word plan when they decide to take the plunge - Buy, Rent & Sell. in this article we are going to explore the idea of NOT renting and how this may affect your returns.
In our example we will make things simple.
You have Zl. 600,000 cash. You buy a 60 sqm new apartment for 480,000 (zl. 8,000 per SQM), leaving you with zl. 120,000 and a shell apartment. You spend the remaining zl. 120,000 fitting out the apartment and preparing it for rent.
Based on averages you can be expected to rent it our for about zl. 50 per sqm per month netting you zl. 3,000 per month or zl. 36,000 per year. Over a 5 year period, and assuming it takes 6 months to prepare the property for rent and allowing for slight delays in tenant turnover you will have earned 162,000.(36k x 4.5years).
Let's also assume that your property value has gone up by 20 % in the intervening years, and is now worth 60 sqm x 9,600 = zl. 576,000. Assuming some of your furniture, fixtures and fittings are nearing the end of their shelf life we will add zl. 50,000 to this price to reflect the fact that it is not a developer standard apartment.
So your gross profit after 5 years will be 626,000 less your zl. 600,000 investment = zl. 26,000
We would expect that a portion of this profit will have been eaten up in rental commissions, accountants and tax so after 5 years and a 20 % gain you are left with ... pretty much what you invested.
What if you hadn't fitted out the property? What if you had bought more square metres?
If you don't rent out your property and leave it empty your only real recurring cost will be your building administration fee. These can vary wildly and are usually added to the rent you charge your tenant so if you don't have a tenant you will need to pay this fee yourself. Lets assume its zl. 7 per sqm. per month.
Going back to the original scenario, how about you buy 70 sqm instead of 60 sqm. This will cost you zl. 560,000. The administration fee will come in at zl. 29,400 for the 5 years so your total expense will be zl. 589,400.
Now let's shoot ahead to 5 years with the 20% value increase. Your 70 sqm are now worth zl. 672,000 (70 x 9.6k) netting you a profit of zl. 82,600 with no deductions for commissions, bookkeeping etc., plus of course the zl. 10,600 you didn't spend.
These are all of course average numbers and there is no guarantee the property will go up but it's certainly worth looking at when deciding how to buy your next investment.
We would add that it is an all cash purchase. If you are using a mortgage to finance the purchase then the numbers obviously change along with your monthly cash requirements. And if we had zl. 600,000 we would buy three apartments and put a mortgage on each! .. but that's just us:-)