An investment flat is a popular way to grow your capital
You have purchased an investment flat at a favourable price and are now rubbing your hands with satisfaction over a profitable purchase, expecting an annual return of several per cent. Although buying a property well is an important link in the investment chain, it is not in itself enough to achieve an attractive long-term return.
The return on a property depends not only on how well you buy on the property market, but also on whom you manage to let it to and under what terms. Your choice of tenant directly affects the net return. While gross return compares the purchase price with the annual rent received, net return must also take into account the costs of necessary routine repairs, regular maintenance and any damage caused. Choosing the wrong tenant therefore directly threatens the profitability of the investment, and the owner of an investment flat loses out on an attractive return on their invested capital. The same applies to high tenant turnover, which generates further costs if you are unable to let the property continuously and there are long gaps between occupancies.
“Buying the ideal investment property is not the end of your worries – quite the opposite. A property needs regular care. Quality management requires a considerable amount of time: placing advertisements, communicating with prospective tenants through dozens of calls and emails, flat viewings in the evenings, collecting rent, transferring utility and energy accounts, refurbishments, arranging repairs and regular maintenance, communicating with suppliers, paying taxes and fees, and above all the ever-present administration of payment slips and contracts. In practice, the idea of easy extra income quickly gives way to disillusionment, and what began as a hobby alongside employment often becomes a full-time job,” says David Novotný, owner and managing director of the real estate company Bohemian Estates International, which has been involved in the purchase, management and sale of properties, not only investment properties, for more than 10 years. The time investment is substantial. Yet time is the most valuable commodity and can be invested in more worthwhile activities, including pursuing further investment plans.
A flat only becomes a worthwhile investment when it is well let over the long term to financially sound tenants with a reliable payment record. The greatest nightmare is non-paying tenants, so-called serial movers and other problematic tenants who cost you a great deal of money and time. The human factor can be unpredictable, so it is best to eliminate or at least minimise this risk from the outset.
“If managing investment flats is not your full-time job, it is better to entrust their management to professionals. With your consent, but without your involvement, a quality property manager can handle virtually everything a tenancy involves. From checking tenants’ outstanding debts and collecting rent, including ensuring any loss of rent is minimised, to routine maintenance, repairs and all dealings with authorities and utility and energy suppliers. You can then simply receive your income in peace,” Novotný continues, adding: “With good occupancy, you can achieve the highest possible return of up to 7 % p.a. without work or worries. Thanks to our experience and expertise, we achieve average occupancy of 96%. The service therefore pays for itself and also helps you increase your profits.” Investment flats offer owners two forms of appreciation: income from rent itself, as well as the increase in value of the purchased property.