Buy-to-let real estate is a kind of investment that works pretty simple: you buy a property and rent it in order to make money from the tenants. Whether it is a residential house or a commercial space, buy-to-let investments have been common practice on the real estate market for decades.
You might want to choose this kind of investment since it seems much safer than, say, stocks and shares, it is very much long-term and might return a potential good profit. Nevertheless, there are some risks you should take in consideration, like prices going down in case of global recession, bad tenants, natural disasters or other complex social and urban shifts that might make a certain areas less attractive for tenants.
What are “the signs” of a good buy-to-let investment?
In spite of some uncertainties, people are investing in real estate; it is considered a low risk investment and a way to get high yield from rent and property value increase.
For a good buy-to-let real estate investment, you’d have to follow the local real estate market closely and see the most important trends and if the market shows any signs of a possible collapse. For example, the real estate market in Bucharest had a massive crash in 2008, together with rest of the world, with prices dropping massively at that time. Ever since, though, things have been booming in the capital city of Romania.
It is also important to follow the local regulations, like the taxes on rent profits. Also, the costs of maintenance and property management are another important factors.
People in Bucharest are ready to pay almost 30% more on an apartment’s rent if that apartment is close to the metro or to the city center. Also, there are some certain areas where office spaces are erected overnight and where real estate developers started building residential apartments to take advantage of the development tide. Buying in these “hot” areas could also mean bigger rents and easier-to-find tenants.
The main advantages of buy-to-let real estate in Bucharest
There are many advantages for investing in buy-to-let properties in the capital city of Romania. One major advantage is the prospected growth in investment. Big players in the real estate market are betting big money on Bucharest and this also makes prices boom. Let’s see some facts!
The real estate market in Bucharest and prospects for 2020
Price for residential studios and one-bedroom apartments rising with 3% in the previous year, while the residential houses’ price has risen with 10% in 2019. This is a quite big growth if you take into consideration the time frame and the percentage.
Most real estate agents in Bucharest claim that the number of real estate transactions were on an ascendant trend last year and that there are high prospects they will continue to grow in 2020 as well.
The main source of this wobbling on the residential real estate market and the general concern is mostly because of the governmental “First House” program which enables young individuals to buy a house or apartment with the financial aid of the government. In 2020, there are discussions of a big grant from the government. Nevertheless, the prices are still surging and buy-to-let investments are still on the rise.
The volume of real estate investments in Romania will rise to 1,1 billion euros in 2020
A lot of big developers are investing their money in Romania real estate, especially Bucharest, which is expected to attract 80% of the total investments, according to analysts. To put it in perspective, last year’s total investment value in real estate was 683 million euros, in Romania. So, if big players are investing in real estate in Bucharest, then you should too.
Another study shows that the average rent for a one-bedroom apartment in Bucharest is 420 euros/month.
What are the risks of buy-to-let investments in Bucharest, Romania?
You can’t start a real-estate investment without analyzing the risks. In Bucharest, the biggest risks are:
- Dropping prices as a result of a real estate crisis
- Not being able to sell the property at a much better price than your initial purchase
- Bad tenants which can damage your property
Taxes and fees
If you make money from rent in Romania, you (as a foreigner) have to pay 6% of the monthly rent as a tax to the state. So, always keep that in mind when calculating the yield.
There is a demand of 4,6 million square meters of office and industrial spaces in Romania, in 2020
4,6 million square meters of office and industrial spaces are about to be built in Romania in 2020 and the market has the potential to double that to 8 million square meters in the next years. This demand is mostly focused on the biggest cities in Romania, Bucharest included. This demand will most probably attract investors, which will attract more jobs, which will attract more people coming from disadvantaged areas in Romania to work in big financial centers like Bucharest. They will need a place to stay, right?
So yes, there is a lot of potential in the Romania real estate market. In Bucharest, office spaces spring out like daffodils all around, rent prices skyrocket and getting a mortgage is quite hassle-free. This period is good for purchasing relatively cheap properties with big prospects. It’s all in the way the market moves.
All in all, buy-to-let real estate investment is not a great way of making a profit on real estate property in Bucharest.