Nothing happened! A strange thing to be excited about, right? Well, after quite some busy months, it's a nice change of pace I'd say. Though it's not really true if I'm honest.
4. 9 tips when looking at new build apartment investments
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Last Updated on November 8, 2020 by Mr. FightToFIRE
I covered why you should(n’t) get a turnkey apartment, but what if you get one? The purchase of a turnkey apartment is a major decision that can save you a lot of time and headache if you keep these 9 tips into account. They are points I looked out for before I signed the sales agreement way back in June.
These 9 tips make sure you don’t end up regretting your choice down the line when it’s too late to get from under the agreement. At the end of the day, some luck is always involved, but with these tips, you shouldn’t need as much luck.
1. Look at the specifications
If you are planning to buy a turnkey apartment, study the specifications in depth. In it you can find which techniques the contractor will use used and which finishing standard. With finishing standard, I mean what type of closets, furnace, or other built-in appliances.
Based on experience from people online, it’s clear that the fewer prices/item are included in the specifications, the lower the quality of the end product will be. The concealment of surcharges and other costs often turns into the discussion and puts delivery on hold. Always remain vigilant and demand complete transparency in the prices and additional costs used. Anyone who does not keep a trained eye on this may not achieve the returns he or she hoped for.
2. Choose the right location, location, location!
As with many investment properties, the location is important. The corona pandemic has gnawed at the popularity of the location through the boost of home-working and e-commerce. There is an increase in interest for houses or apartments with a garden and/or terrace. However, the potential of the rental market here remains highly dependent on location. Depending on your preference, or specifically, your preferred target renters’ wishes, elements such as mobility, hotels or restaurants, stores, and schools will play a role in how good a property sells.
Buying in the city is still a solid option. While this pandemic makes people think about what is important, you cannot underestimate convenience. Close to work, but also close to schools and shops. An apartment in the city instead of in a rural area also means a larger tenant market there. You won’t only find young people who are still saving for their own home, but also older people who sold their villa in the countryside to live closer to or in the city.
3. Check the finances
Unfortunately, several developers and other builders don’t have a solid foundation. If there is an economic setback (or pandemic), then – at best – the purchasing projects will only be completed when there is sufficient income from other realizations. Huge delays – think of years – bad or unfinished buildings and even bankruptcies can be predicted by checking the financial data of the companies involved.
In Belgium, a good place to start is on the federal government site on recognized contractors.
A recognized contractor is recognized to also work for the government. This means that its financial and technical capabilities have been checked. Although you cannot conclude that a non-approved contractor is by definition in a worse financial position than a recognized contractor you should still check for references.
4. Ask references
If you want to buy from the ‘big boys’, there should be a list of realized projects on their site or in brochures. It never hurts to drive past them and talk to former buyers about their experience with the promoters. If you buy your property from a slightly smaller or more distant developer or contractor, make a little more effort to check references and act on the outcome of the sample.
5. Know the market
What are the average prices for similar properties in the region you are interested in? What quality can you expect for these average prices? How long is a similar property aks you have in mind, on average for sale or rent? These are all parameters for estimating whether you are going to make a good or risky investment.
6. How rentable is it?
Is the layout of the flat ideal? Is the terrace and/or outside space large enough? Which facade of the flat is facing the sun? Think of the list of arguments you would use yourself if you later have to give it a tour to potential tenants.
A new apartment is interesting because a renter is someone that doesn’t want too much hassle (being one myself I can attest to that). Having a nice bathroom and/or kitchen makes it a lot more interesting for renters.
7. Focus on your target audience
Would you like a small flat in the city center, a 3-bedroom flat with an outdoor garden or a loft in the trendy city district? Then keep in mind which type of tenant is interested. As an investor, you may consciously choose to work with a certain target group of tenants: students, young families, people in their sixties who are tired of maintaining their villa, or trendy career hunters? Find the perfect match.
It’s obvious but worth remembering, don’t discriminate. For example, you can ask how much someone earns but not how he achieves that income. More info for Flanders can be found here: https://www.vlaanderen.be/publicaties/discriminatie-op-de-huurmarkt
8. Spread the risk (if financially possible)
Anyone with the budget to invest in several new-build flats can choose to always purchase the same types of flats with the same builder, in roughly the same location. Nevertheless – certainly in the initial phase – it is not wrong to spread the risks and gradually build up the portfolio according to the formula you feel comfortable with and the expected return.
9. Determine the right price
A rent that is too low undermines an attractive return. Conversely, high rent does not always guarantee a high return. The pond of potential tenants in which you can fish is smaller and every month that you do not rent out the apartment, your yield diminishes. If you contact a broker, they will also have a good idea of realistic rents.
Note that the agreed rental price cannot change for the duration of the contract. During the term of the contract, the rental price can only be revised 9 to 6 months before the end of each three-year period. There is one exception to this principle: a landlord who takes energy-saving measures can adjust the rent at any time. Unless it concerns energy-saving measures that are required to comply with the obligations in the field of roof insulation and double glazing.
You do have the option to index the rent. This is allowed once a year: on the expiry date of the contract and based on the health index. Please note: this indexing is not automatic, it must be explicitly requested by notifying the renter.
These are 9 tips that can help you when you are looking into your first, second, or third real estate investment. Of course, regardless of these tips investing in real estate requires a substantial investment that a beginning investor doesn’t always have. A good alternative is REITs or Real Estate Investment Trusts.
2 Belgian REITs I’m a real fan of are Aedifica and Cofinimmo.