How to invest in foreign real estate with a budget of 100 thousand euros
Many of our clients are private individuals with a budget of several hundred thousand euros, who want to invest in real estate abroad. A quick study of the market may seem that this amount will not be enough for a good profitable property: after all, offers of high-quality commercial real estate in Europe usually start from 5 million euros, and small retail premises in popular locations are sold for 3-5 million.
Nevertheless, there are many investment products on the international market with an entry threshold of 100-500 thousand euros: from the purchase of micro-apartments, which bring about 5% of annual rental income, to club transactions in development projects (10-15% per annum).
Before telling in detail about these proposals, I will clarify what we mean by investment. These do not include buying property for your own use (for example, to come on vacation), as well as for a residence permit or citizenship. The investment products that will be discussed here are intended for customers whose motivation is to receive income on invested capital. I do not recommend mixing this goal with others, because different goals correspond to different selection criteria. If you are looking for housing for yourself, then choose such an object and such a location where you yourself will be fine. If you are interested in a “golden visa” or a passport – this is a completely different topic that deserves a separate article. Real estate that you buy for residency will rarely bring tangible income.
If you want to invest in order to preserve and increase capital, then you have a choice of five products:
Hotel rooms, student dorm rooms or nursing homes
Micro apartments and apartments
Loan for development or renovation projects
Club deals in development projects
My recommendations are based on the experience of Tranio projects in Germany (Berlin, Bavaria), Greece (Athens) and Spain (Barcelona, Torrevieja). But in other European countries, where the market for foreign investment in real estate is developed, you will find approximately the same conditions for investors.
Residential real estate for rent
The first three products are united by a common strategy: you acquire the property and receive income by renting the property. With such investments, it is better to focus on a tenure of at least 5–10 years, and profitability is at the level of 3-5% per annum. Risks are minimal, and in addition to rental income, you get an increase in the cost of the object by an average of 2-3% per year. This is a conservative strategy, suitable for those whose main interest is to preserve capital and save it from inflation.
The management company is engaged in the operation and maintenance of the facility, and often the settlement of tenants.
1. Hotel rooms, student dorm rooms or nursing homes
The cost of such objects starts from 100 thousand euros, and you can buy both a single room and a block of several residential units. The owner cannot use this property for his own residence, but this restriction is offset by a relatively high yield: at the level of 5% per annum.
2. Micro-apartments and apartments
I recommend buying ordinary residential real estate in large, prosperous cities, and I advise you to pay special attention to micro-apartments, that is, small-sized apartments with an area of 20–35 m² and a cost of 120 thousand euros. As a rule, they are sold in new buildings, and the average rental income reaches 4.5% per annum. This format has particular advantages in Germany: in most cases, rental contracts for micro-apartments are medium-term (up to 1 year), so the owner can regularly index rents and easily evict residents if they are insolvent. Conventional-sized apartments (70–80 m²) cost from 300–400 thousand euros and yield a yield of about 3% per annum for long-term lease, but they are more liquid than micro-apartments. In the most advantageous locations – the inhabited central areas of large cities – there are few new buildings, and the main share of proposals falls on the secondary market. If you buy a “secondary housing”, be prepared for the increased costs of its maintenance.
I often have to warn clients who are ready to “peck” at offers with extremely high rental returns (7–10%) and a guaranteed rental contract during the first few years of ownership. Usually this is a sign that the property is illiquid, and its price is overstated at least one and a half times. If you buy such an object, you will actually pay the 10% yield yourself, and after the warranty period, it is very likely that you will be left without tenants, and without a chance to successfully sell the property.