I thought It was about time to write a few lines about property investing in Romania, having been here now since 2007 & had my own investment property here since 2003.
This is in fact my first article on investing I believe despite 4 years of local direct experience & presence, because I believe for the first time in that 4 years, the time is right to invest. If you google ‘investing in Romania’, there are endless sites going back to 2006 & its comical to read their ridiculous predictions, stating ‘all you have to do is part with a few thousand euros for a finders fee’! I’ve followed my own advice & as John G also points out in his article on Tampa Gardens below, you cannpt beat jumping on a plane & checking out the hype yourself. It seems a crazy thing to do buy actually, its a lot easier than you think & good fun, not to mention very revealing.
In my opinion, the 2nd half of 2011 & through 2012 are the best times in the past 5-6 years to invest in Romanian property, but one must do so carefully. Prices now are back to 2006 or 2005 prices The market has had such a roller coaster ride since 2006 that people have made & lost fortunes. The upside is, the market is much more experienced now. Something that was severely lacking previously. When I first invested in 2003, the following was true:
- There were no reliable precedents in Romania to trend value due to rapid unique growth.
- The whole market was feral.
- Foreign investors were seen often as stupid, gullible, rich people with money to burn.
- There were almost no experienced professionals.
- Growth was out of control.
- There were no standards, nor precedent of standards.
- Tastes were at best, wildly varied, from hideously disgusting to passable.
- Construction & renovation material quality & workmanship varied enormously.
I’ve read so many internet articles & adverts promising gold & riches, & seen so many agents & sub agents purporting to be your best bet to take you on this exciting journey.
I recall following one major proponent of CEE property in 2006, a London-based company (lets call them Property Shenanigans for arguments sake). In their ‘members only, insider guide to Polond’ it stated how Poznan would yeild rental returns of 6% on ONE BED apartments costsing 90,000! In plain english, that means some poor tenant is expected to pay 500e per month plus bills for a one bed apartment in city similar to Birmingham, yet the average salary for most young professionals was 250-400 per month, which means his disposable income for rent would be around 150-200e. To return 6% from 200e per month, oyu could not spend more than 45000e, furnished!! Only by going there & getting in amoungst it, could I find that out.
Thankfully, the one thing the crisis does do is weed out all the blaggers & fast talkers. When I came to Brasov December 2007, there were 300 agents in a town of 220,000 people! The only agents that have remained through the crisis are mostly the hard working or those who do not depend on that income as they have other business streams.
As the market picks up now in the next 2 years, new blaggers will come along for sure. So the 1st acid test buyers should be asking is: how long have you been around & look for hard evidence of that. There are some truly hideous examples of people being duped such as Jucu Developments in Cluj, & Forrest View in Mihailesti, & the unfortunate people who bought through MRI in Sidney & Adelaide developments in Bucharest. The list is endless & many people will probably have extended mortgages for a very long time through a mixture of poor decisions, minimal research & cowboy outfits. I myself lost 25k to a petty crook from the USA named Marvin Denman Fisher & his charming wife, operating under Chase & Denman or RPIC, building up his respectability through the Baptist church before managing to lose almost 2m Euros of investor’s money, while living like a Prince. I’ve seen them all, come & go, rise & fall & there will be more still to come.
However, I have also witnessed some very canny investors in my client base. I don’t agree with all of the decisions my clients make, but then I can be wrong to. It’s about calculated judgement. But there are some good basic rules to stick to & I will share with you the benefit of what I have experienced here with a few examples:
- Total investment 132,000e.
- Annual gross rental return, 9.5%.
- Rent stability: fair.
- Equity growth: good to high
This client bought a run-down but structurally sound 4 room apartment of 130m sq on the Republicii Street in Brasov for a mere 80k in 2006. He then spent 52k on renovating it, but now, it brings a gross rental return of 9%. At 1000e per month, it is a risky investment to hold, but spending the renovation budget wisely & ensuring the work & materials are done to a high standard will minimise the void periods.
Changes made to the apartment:
- Renovated exterior windows
- Replaced interior windows for double glazing
- New raised flooring
- Complete new heating system
- New glass doors & & sheetrock walls
- Complete new wiring for industrial use
- Alarm & sprinkler system
- Ladies & Gents toilets created
- Underfloor wiring for power, phones &
- New balcony & conservatory
The apartment is now as close to Class A office space as you
can achieve in the old town & as such, remains almost without competition,
- Total investment 43,000e.
- Annual gross rental return, 7%.
- Long term rent stability: highest.
- Equity growth: good
Client B bought in 2011 a small 2 room apartment on Postavarului Street, 45m sq, 36,000e & spent another 7000 furnishing it well, including a total renovation, new kitchen, new wiring & full custom made furniture. The apartment now rents for a respectable 250e per month & will always achieve at least that value, given the location.
- Total investment 72,000e.
- Annual gross rental return, 8%.
- Long term rent stability: high.
- Equity growth: good
Client C bought in 2011 a 3 room apartment in Old Town, Postavarului Street, Brasov, 75m sq, 66,000e & spent another 6000 furnishing it well, including a total renovation, new bathroom, new wiring & full alarm system & renovated antique floors. The apartment will soon rent for a 500-550e per month as a commercial outlet & will have a stable future given its location in Piata Sfatului, Brasov’s market square.
Not all investments give 7-10% return, but there are few that offer less than 5%. Long term. Being arrogant for a minute, as long as you have someone as dependable as White Mountain to take care of the property, assuming you are non resident, then the investment is going to prove a wise one, & an inflation beating one. You’ve heard me say many times, I set White Mountain up in Romania because I could not find someone to help take care of my investments so I came to do it myself but now that I am here, I am happy to help where I can.
Damian Galvin, Founder of White Mountain Property