Goldmine: How to make money on the lease that such scheme buy-to-let and ROI?

19.10.2010 00:01
Rare investor now has the ability to quickly and profitably sell their overseas property. More predictable are worth renting property for rent. At what annual income you can expect and what to do to stay in a tangible plus?

Not all Russians are in possession of the opportunity to buy property abroad, realized how profitable is the rent. Selecting the 'wrong' facilities for lease and abandonment of mortgage lending - the main error.

Meanwhile, as we are assured by experts abroad is quite possible to get 10% or even more than 20% per annum! As well to ensure maximum return on investment in overseas property?

No need to spoil the tenant
Concentrate on scenarios where the object is bought exclusively to rent - this strategy is called buy-to-let (buy to pass"). In Moscow, the rent brings in average 4-4,2% pa abroad can receive an income above - but it needs to act wisely and follow certain rules.

The first advice of experts - at once understand that under the lease should not buy what they buy for their own recreation. "Want to pamper myself - you pick the best place, best view, the best furniture. All this greatly increases the cost of purchasing and operating real estate, reducing the profitability "- said Sergey Sander, founder and partner of Sander Estates S. A.

With him, according to experts of the company IntermarkSavills, adding that expensive facilities rental liquidity is low, so it is best to deal with the most popular real estate, namely the middle price range.

It is equally important to decide to purchase. "If you want to combine business with pleasure, to use the property for vacation a few months of the year, and the rest of the time to pass, it must choose among the favorite resorts, - says Sergey Sander. - But if we consider it only as a business, you should pay attention to the large cities with high demand for housing. " To obtain high and stable income from rental of commercial real estate expert recommends - accommodation in apart-hotel or a mini-hotels.

As little as possible risk
It is equally important to choose the right country. Head of Department of investments in foreign real estate companies IntermarkSavills Igor Indriksons advised to focus on the old Europe, such as Britain or France. Profit of the owner there is often lower than in emerging markets - but there are financial instruments that allow you to increase income from capital invested in four or five times. Chief among them - mortgage lending.

In addition, in Western Europe are organized mechanisms to reduce investment risks. For example, in Britain, you can insure the financial risk - in case the tenant will ruin the property, will not make a payment or if there are legal difficulties with his eviction.

Finally, do not forget about the system of guaranteed income from rent (rental guarantee). Such programs do exist outside of the Old World, but safeguards in Egypt and Britain - is, as they say in Odessa, two big differences.

How do the operating companies
Besides, living in another country, real estate is difficult to manage on their own. Finding a tenant can and through the Internet, but the question is cleaning and maintenance is still open.

Management companies for a percentage of profits to help solve all problems at once. And it is with management companies in a number of large resort complexes can enter into a contract with a guaranteed income. "The cost of operating companies depends on the country, - says Sergey Sander. - Usually a commission of 3-5% to 10-15% of turnover or a fixed annuity.

The latter option is rare and only in large projects with a strong experienced management. " Managing Director InvestPravo Property Elina Sivankova says: "Several new proposals with guaranteed rental income is in Cyprus, which enjoys a year-round demand among vacationers.

In Portugal, in such schemes are often involved State, to support the market rental housing. Several proposals have in Italy. Typically, the management company that offers investors a guaranteed income - is a subsidiary of the developer, which provides a more professional service. "

With some of the proposals related to rental guarantee is a serious problem: according to Igor Indriksonsa, such objects can be sold at an inflated price. In other words, a guaranteed rental income built into the price of an object.

Here, the main ally and adviser of the investor - a bank: taking on a significant portion of risks, it checks the adequacy of price and reliability of the management company.

Lease Calculator
By itself, rent - it's not sverhpribylny business. "Holiday Property Ads on the yield is comparable to the conservative bank deposits - said Elina Sivankova. - European average does not exceed 5-6% per annum. " Approximately the same rates and programs rental guarantee.

Increase the efficiency of investment is possible, using bank financing. Igor Indriksons says: Russians have not yet assessed the potential of the scheme buy-to-let, because they do not understand that the investor should be interested not so much a return of the asset, how much return on investment (ROI - Return of investments), then there is no percentage of the purchase price, and for money. Mortgage can reduce the size of attachments, greatly improving the final financial result.

"Let's give a real example - Sergei says Sander. - Switzerland, a resort holiday home in the mountains with hot springs. The cost of the studio is 350 000 francs, rent may be 11 months of the year, at least one month to live for yourself. Income from rental of 600-800 francs per week, or 2400-3200 francs a month.

If we take the average rate of 2,800 francs a month, multiplied by 11 months and subtract 3000 francs per year for maintenance, you get about 8% per annum. If the property is purchased with the assistance of credit, the return on investment may be higher - about 13%.

But we must understand that if you take the long term 5-10 years, the renovated apartment, plus seasonal fluctuations in occupancy of the resort can adjust the figures.

Credit - Benefits
Another example more specifically illustrates how the mortgage affects the profits of the investor. Project with a guaranteed yield 11.8% excluding growth in the value of the asset. An investor buys a room in a five star hotel on the golf resort.

Full room rate - 250 000 pounds. Initial Fee - 82,500 pounds, the rest is covered by a mortgage 3% per annum, receipt of which guarantees the developer (can take up to 70% of the cost over 25 years). And there is an option that allows you to pay only the interest and duty to return the body to the bank after the resale of the object. 6 per cent rental income is guaranteed for 10 years. If real income is higher, the remaining amount is divided equally between the investor and management company.

What is the estimated financial result of this deal? Payments on the loan amount to 5,250 pounds a year. Fee for the content of the object - zero. Sell the facility at any time, without waiting for full payment of the loan. Rental income, net of fees for credit - 9750 pounds per year (11,8%).

If you sell an asset in five years, then to nested 82,500 pounds you can earn 48,750 pounds only on lease, and assuming growth in the value of the object by 5% a year, that income will exceed 111,000 pounds. It is 134% in five years, or an incredible 27% per annum! 70% of the risk lies with the bank and the investor is in any case retains its ownership.

The private investor has an opportunity to join and to professional investment strategies. In projects with no guarantee of income gains an investor may be very high. Typically, these proposals differ in the level of institutional investors, but sometimes for mere mortals there is room in business class.

Indriksons Igor tells the story of a real project, where the purchase rates cost 60 000 pounds in the apartment hotel customer makes a down payment of 30% (18,000 pounds). On the remaining amount shall be issued a 10-year loan at 4% per annum. Taking into account the costs of legal initial investment of 19,500 pounds.

The hotel has 311 rooms, it means that the share of profits from one number - 0,32%. Investor not only earns at the room, but also gets a share of revenue for additional services - mini-bar, phone calls and stuff. Operating profit of the investor - 23 pounds per night.

Forecast fullness of the hotel - 73-80% annual growth rate of the hotel market is expected to reach 5%. Under these conditions, revenue is about 10% a year without a mortgage, which in itself is not bad. From the investor will receive credit for 23% of the profits in the first year, and with the growth of the asset return on investment will grow to ten years to reach 50% for 12 months!

Yield is not formally guaranteed, but since the project manages the world's largest management company (she is engaged 4,400 hotels capitalization - $ 5 billion), an investor can sleep peacefully.

In IntermarkSavills recognize that these investments - it is basically the inheritance of the major players, buy at 20-30 units, but a good opportunity to open and to private clients who are willing to buy even a single number.

Himself, the landlord
Of course, anyone can go the more traditional way, just buy a home (with or without mortgage) and rent it out. Commissioning of independent navigation, we must take into account the nuances of national legislation.

Investors should be interested in the opportunity to evict a tenant without a problem, if necessary, and to insure financial risks. Specialists IntermarkSavills said that concern the market in this respect is India, where the tenant commercial facility may not be able to evict for 25 years.

In Europe, in this sense, complex market in Germany, where the government regulates the rates and actively protects the rights of tenants. (In other European countries can terminate the contract by notifying the tenant in one month.) In the UK there are three types of contract rents. So, without consulting with a professional on the rental market is better not to leave.

Peculiarities of the National Rental
National characteristics of each market greatly influence the outcome of investment. For example, in Bulgaria and some other countries, foreigners rarely make out mortgages, and hence the profit above the 5-6% per annum there can be forgotten. In some states there are restrictions on buying a second home or a quota for foreign investors.

If you use credit is better to have an additional source of repayment or to limit their investment optimism. Elina Sivankova notes that housing is not always able to redeem itself. Well, if the yield of 6% were able to take a loan with a rate below 4.5%, and the amount of taxes and other expenses do not exceed 1.5%.

In France, the state guarantees the return of some objects, which are sold under the scheme leaseback. In this arrangement, the investor also gets the opportunity, through some time back the VAT.

We must recognize that investment scheme buy-to-let - yet exotic to the ordinary Russian investor. According to experts IntermarkSavills, cause - a poor understanding of the principles of western financial markets. For example, many people mistakenly believe that the object can not be sold without paying fully with the bank for a mortgage loan.

Meanwhile in the UK Strategy for buy-to-let has become so popular that even analysts have pinned the blame for her excess demand and the emergence of a bubble in real estate. It is believed that every third new facility in London, bought for the purpose of earning on the lease. According to the Association leasing agent for rental accommodation (ARLA), in recent years has significantly increased the number of Britons working with a portfolio of facilities in the kingdom and abroad.

There is no doubt that the number of Russians who give shelter abroad, will continue to grow, it is obvious that to make a property only through the growth of the market is not always obtained.

Council of Investors under the scheme of buy-to-let


Plan to invest in medium or long term.

Make sure that the rental income exceeds the mortgage payments and additional costs.

Perform repairs and obstavte housing standards, the relevant object class, pay attention to the kitchen and bathrooms.

What not to do

Not to rehabilitate housing for rent to suit your personal taste.

Do not buy a house with potential problems in maintenance, for example, with an abundance of wood in the finish or a large garden.

Do not expect to entrust management of the facility to friends and relatives in his absence.

Do not attempt to draw up a contract - refer to the professionals.

Content tags: Overseas property Rent
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