Bulgarian Property

dvdfan

Hi,

A family member is considering investing in property in Bulgaria, namely an apartment. This property is in Sunny Beach Bulgaria, a popular and up and coming holiday resort (they have already visited this resort). He found it through daft.ie and an Irish developer in the midlands gaurantees rental income of 5.5% for the 1st 2 years. The prices start at €47,000 and considering a mortgage for this amount would be approx €177 per month and 5.5% gauranteed rent would be approx €215 per month.

Im sure theres other costs their not considering and also im worried that because there is such a huge property boom (or so im lead to believe) will it become hard to sell the apartment at a profit because there will be so many buyers and most people will be reluctant to buy new rather than second hand or do you think this is a sound investment.

Alot of the articles ive read are from estate agents etc who would obviously paint a one sided picture. Has anyone gone throught this process and is it any more complicated than buying an apartment in Ireland and would you recommend it or not.

Cheers

SmoothyG

Firstly my advice to anyone considering investments abroad, make sure the Company is ISO and AIPP approved, these are the 2 regulatory bodies for the overseas market. They make sure the company is transparent and has a papertrail for everything. Make sure you know exactly who is guarenteeing the rental, Germany is the only country i am aware of that the government guarentees rental, so if it is the company make sure that it is in black and white that they will make up the difference.
On that piont i would suggest finding out the expected rental returns in the area anyway to make sure 5.5% is on target. as 215 pm for a holiday rental is very very low, so if they guarentee a year round average of 215 pm then it is not much of a guarentee if the expected return is 1500pm in the high season.

there is good preoperty to be had in Bulgaria, choosing the right company to buy with is half the battle. A few hours spent investigating the company is time very well spent.

the reason for the property boom is because irish people have reaped the rewards of the celtic tiger, and we can afford to buy second homes, or investment homes. so where there is demand there will be supply.

also it is worth the extra money to hire an international law firm to look into all the contracts if they are not Irish.

selling the apartment at a profit should not be a problem if the area has a sustained high tourist trade. Just be wary of areas that are sited to be the next big tourist area without researching why the estate agents belive this. as it is very easy to buy cheap land, declare it a tourist area do good marketing and PR then let the hype do it all for you.

Biggest question for the salesman in the company for such a cheap apartment is,why do u think it will appreciate in value? the normal answer will be a sales gib, but look for hard facts.

jdivision

If it's only two years guaranteed rent the developer has probably added the rent to the purchase price.

dvdfan

jdivision wrote:

If it's only two years guaranteed rent the developer has probably added the rent to the purchase price.

On that note, does anyone know of any websites where i can check prices of apartments to see if the price is above or below average. As these apartments are located inside a holiday resort then the prices would obviously be inflated. AFAIK they stayed in an apartment over there for around €300 per month and it was very nice so that quote isnt bad considering it might not be renting so much during peak season.

Thanks for the advice so far and keep it coming, also i presume wants the 2 year contract is up thats it, he was under the impression that they would seek a new contract at this stage but i doubt it??

connundrum

Ok, as a man who been on nearly every side of the international property business I will try and impart some unbiased advice.

In the past there have been sharks who have added the cost of 2+ years rent onto the selling price of an apartment. Because some have done (and some still do) it doesn't mean that all do.

Bulgaria has been tipped by the UK Observer and the Irish Indo as being the tourist hotspot for 2007/2008 - this would give developers the confidence to offer a 2 year rental deal. In Sunny Beach there is a maximum 5 month rental period (due to harsh winters) and therefore everyone tries to maximize the rental potential for the area.

With direct flights from Dublin and the UK with www.air.bg it makes it possible for people to visit for the weekend - which opens it up to the flying visitor tourist trade (it could become a cheap weekend break destination).

I've known people who blindly gave €50k+ to a developer who had promised them 'central location' and 'on the beach' benifits. These people are dumbass's IMO. If you want your property to have maximum capital gains and rental potential then you have to buy in a good location. You wouldn't buy in Longford and expect Dublin rental prices now would you? But this is what people are doing!!

So basically for +/- €46k you will probably get a studio or small 1 bed in a 'lovely' location - as per the brochure. Lovely meaning that it may be a 10/15 minute walk to the main street and may be a 10/20 minute walk to the beach. If you're happy with that then so be it.

Rental is predicted to fetch 5%-7% of the next couple of years (again depending on location and facilities available)

dvdfan wrote:

Thanks for the advice so far and keep it coming, also i presume ònce the 2 year contract is up thats it, he was under the impression that they would seek a new contract at this stage but i doubt it??

Many developers will offer an extension if the tourism influx is still on the up. They make money from you renting your apartment too, so it would be in their interest to extend the rental agreement by another 2 years if all is going well.

www.buyinbulgaria.com Tom Fingleton down in Cork is a good guy
www.pdi.ie Brent Pope's company

I won't pimp my own company.. thats baaaad

dvdfan

Thanks for the reply connundrum, exactly the type of info i was looking for. There looking into this in detail at the moment so they should probably have alot more information on exact prices and what their getting for that price but whats the best way to find out if im getting a good price or not?

Also hes pretty sure that the 2 year gauranteed rent thing will be renewed after the 2 years and that the only reason they are doing 2 year initially is because they will want to renogotiate the deal at that stage with the travel agent. From the information i was giving this company have the whole complex which has 24 hours security, air conditioning, private pool, restaurant, a shop, hair and beauty salon and a fitness studio etc all within the complex and AFAIK the company have a deal with 1 or several travel agents to help keep the apartments rented during peak season.

I would be doubtful that they would gaurantee this for more than 2 years so i told him to double check it along with another few things. He will be checking it all out and ill get back to you with the results. But if the expected rental is 5-7% then this would still be a good investment i would think.

The problem is if you go to a developer theres a high probability that they are going to give you all the positives but not mention the negatives and thats what you would expect although i appreciate your unbiased info.

btw the property is in Silver Springs, Sunny Beach approx 500m from the beach. The prices start from 47,000 but this is obviously for a 1 bedroom apartment.

jdivision

connundrum wrote:

Bulgaria has been tipped by the UK Observer and the Irish Indo as being the tourist hotspot for 2007/2008 - this would give developers the confidence to offer a 2 year rental deal. In Sunny Beach there is a maximum 5 month rental period (due to harsh winters) and therefore everyone tries to maximize the rental potential for the area.

Whatever about the Observer, the Indo is completely advertising driven and can't be relied on.
Sunny Beach has a surplus of investment properties. That's why most places are being sold with guaranteed rents - to hide the reality from investors. 5-7 per cent yield in somewhere with real currency risks and with an excess of accommodation is pretty awful. Your family also needs to go and see exactly where they're buying and spend a few days looking at what other schemes are charging. They should also ask for a discount. I'd also advise them to check out the second hand market for apartments and see how long it's taking them to sell. I suspect it's like large parts of Spain - you can't shift second hand stuff.
http://www.ens-newswire.com/ens/apr2006/2006-04-19-02.asp
http://www.askaboutmoney.com/showthread.php?t=29328
Third para here is important:
http://www.daoreal.com/invest.php

dvdfan

Brilliant jdivision,

Cant thank you enough, as i said in the original post i was worried about a few things and those articles confirm that Sunny Beach, at least is a place to avoid.

It might be a better choice to buy property in an area thats not overly developed but that has potential for around the 20,000 mark and even if it never rented out (they have this money in savings so they wont have to worry about loan repayments) the house should increase in value and certainly make more than it would sitting in the bank

gemwol

Be very careful about "guaranteed rental income of x amount of euros for x amount of years".

This is a marketing term only and for the most part is a scam used by developers to reel in buyers. Example, an apartment has a sales value of €60,000. The developer guarantees 8% return for two years, the return therefore is €9,600euros for the two years. The developer then adds this figure to the original sales price to get the sales price you are going to have to pay for the apartment(In this case the apartment is marketed at €69,500). So the cost of the guaranteed rental to the developer is already included in the sales price. It is a bonus for the developer if he does get a rental on the property but in most cases they might be lucky to get a return of 2-3% but closer to none is often the case.

The prospective buyer is hooked by the fact that the developer looks like he is putting his money where his mouth is. Unfortunately, it's the extra money(€9,500) you overpaid initially for the apartment is the guaranteed rental you receive back in the subsequent years without a tenant ever setting foot in your apartment.

As for Sunny Beach, I read on another forum that a property developer is marketing apartments in Sunny Beach at €56,000 which they have been for some time. But a local agent is reselling a same size apartment in the exact same block that was bought off plans by a speculator for €47,000. So it pays to be on the ground there and finding out what is happening to apartments already sold in the development you are interested in before parting with your hard earned cash.

dwaned

There are other options to beach resorts.... If you go up the mountains to a lake for example you can have the best of both seasons:-) Summer on the lake, boating, swimming,fishing... Winter on the lake ice skating or skiing on the slopes... Be very carefull of the Guarentee rental clause!! Don't have to document translated by the developer, instead go to a independent translator. We've friends over there selling property all over the country, The guy is Irish so it's a lot easier to communicate and they will look after you for your stay driving you around to view property etc.. We've bought three properties through them and hope for more.. If you need any more info give me a shout, can also post you a brochure, or have a look at their site...Below

ronbyrne2005

gemwol wrote:

Be very careful about "guaranteed rental income of x amount of euros for x amount of years".

This is a marketing term only and for the most part is a scam used by developers to reel in buyers. Example, an apartment has a sales value of €60,000. The developer guarantees 8% return for two years, the return therefore is €9,600euros for the two years. The developer then adds this figure to the original sales price to get the sales price you are going to have to pay for the apartment(In this case the apartment is marketed at €69,500). So the cost of the guaranteed rental to the developer is already included in the sales price. It is a bonus for the developer if he does get a rental on the property but in most cases they might be lucky to get a return of 2-3% but closer to none is often the case.

The prospective buyer is hooked by the fact that the developer looks like he is putting his money where his mouth is. Unfortunately, it's the extra money(€9,500) you overpaid initially for the apartment is the guaranteed rental you receive back in the subsequent years without a tenant ever setting foot in your apartment.

As for Sunny Beach, I read on another forum that a property developer is marketing apartments in Sunny Beach at €56,000 which they have been for some time. But a local agent is reselling a same size apartment in the exact same block that was bought off plans by a speculator for €47,000. So it pays to be on the ground there and finding out what is happening to apartments already sold in the development you are interested in before parting with your hard earned cash.

Plus you pay income tax on the guarunteed rental income. If you can't rent it without a guarunteed rental thing then don't buy. Bulgaria is a bad investment IMO and there are lots of bad stories coming out in UK press about sunny beach, bankso etc. I see sunny beach property advertised in the papers this week and the prices don't look much more than prices advertised last year and in 2004 so i doubt the resale market is strong.

A good guide to investing in foreign property is not to buy at prices and in locations which are being sold at property exhibitions, you've already missed the boat and are paying over the odds with overseas property companies generally.

RainyDay

Does your friend fully understand the taxation impacts of his investment? Does he understand the currency risks involved?

daveball

If Your looking or a guaranteed income from an overseas property that you will rely on using for mortgage repayments ........avoid buying abroad.........
Any Company that offers a guaranteed income has already up ed the price to cover themselves.
Its a easy sell if you can offer an income.
The truth is if you have to rely on a income from the property to support mortgage repayments you probably can not afford it, I stress never buy abroad if You cant afford to pay for it, different governments take different views on you being in the red
I would also advise that you don't remortage your home without telling the finance company what you intend doing with the money.
The Irish mortgage lenders know an awful lot about oversea investments so instead of telling them your adding two feet to your surrounding walls, relax and tell them what your real intention is , if its for real estate overseas.
I have bought properties in Spain which is not a great investment at the moment.
I have also bought 2 properties in Bulgaria, I disagree with the statement that you should not buy in Sunny beach as it is overdeveloped, its the total opposite, although Sunny beach is not the Capital, its the Tourist hot spot, and that's where you want to be not in the sticks.
Would you have listened to people 8 years ago saying Don't buy in Dublin as its been overdeveloped, I doubt that.Sunny Beach is only in the early stages of what we went threw 15 years ago, its far from over devolped, the roads have only been re surfaced in the last 6 months, remember the M50 anyone??????????
I have been in Varna, golden sands and sunny beach and my best advise is buy where you feel at home with, if you like the quiet life buy outside the resorts there amazingly cheap, but you may have to set up a company which can do a minimum of 300 euro per year, its very simple.
Maybe you want the night life, look at Varna, sunny beach.
All the prices that you may see may be different so you can see the same apartment for a lot less, it all depends on the agents greed or lack of. We eventually bough a 2 bed for 52.5 k , its 850 square feet and approx 2 miles for the main resort, it gets more expensive the further you get to the coast. The way I look at it is..... why be that close and pay an extra 30k when you can be 5 mins away in a car and have the peace an quiet with your family.........
There are a good few Irish companies out there , on the expensive side we have www.pdi.ie and the company I bought from www.investoverseas.ie are more or less a good all rounder, great service, especially after sales which I find Paramount .
And always be suspicious if they are willing to pay for your inpection trip , we all know they make money on it, of you have any sence either arrange your own trip, dont be under compliment, just let them arrange the Airport Pickups.....
So I hope anyone of the already 30 k Irish folk are happy enough with there buy , I know I have been, lets hope Ryan air start going to Buargas airport very soon, its only 5 Min's from Sunny beach
If anyone is looking for any advise please contact me

BuffyBot

Closing this as we now have a dedicated Investments forum

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