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When we talk about real estate in Romania, there are 3 key considerations:

  • Location
  • Infrastructure (car access, public transport, parks, etc.)
  • Schools

In the past decade, we’ve seen a growing trend where everything “starts” from the central part of a city. The closer to the city center real estate is, the more expensive it gets. Because of this price increase, newly built real estate usually has smaller flats to be more accessible to buyers. Those that can’t afford to live in the city center any longer are pushed towards the outer layers of the city.

 

Flipping vs. holding

Flipping means buying real estate that hasn’t begun developing with a discount (due to the risk) and selling this real estate once the construction is finished. Flipping is also buying a property, renovating it, and selling it for profit.

Holding means buying real estate to rent it out or buying for the long term, where a financial model is drawn up for capital recovery.

 

This capital recovery financial model can be considered from 2 perspectives:

  1. Profit from reselling the property, which is fairly complex. It’s an indicator called IRR (internal rate of return), which is the percentage of capital invested that is returned annually. 
  2. Yield is the percentage of money generated annually from real estate investment.

Edi’s tip: the yield is calculated as gross, so always pay attention to how much it costs to fit & furnish the space, the fee paid to a real estate agent, times when the property remains vacant, and other maintenance costs.

 

Off-plan real estate investments

These investments are made while the building is still in construction or during planning. We’ve also seen a growing trend here, where newly built homes have all been sold while they were still being planned or are still under construction. 

It’s essential to consider 3 factors here:

  1. Reputation & background of the real estate developer
  2. Promise of purchase/sale between the buyer and the real estate developer & terms in the said contract (promise)
  3. Stages of development. The more the property is developed, the more expensive it will get, as it is considered riskier.

That was it for the monologue! Next, we asked our audience to pose some questions to Edi.

 

Audience Questions

Considering the macro conditions of the market, would you recommend investing in real estate or waiting?

It’s kind of a “chicken or the egg” situation. We have seen a decrease in sales volumes, especially in Bucharest (with a 40% decrease). However, what I personally don’t see happening is a decrease in real estate prices, given the current inflation. 

Additionally, given the high liquidity in the Romanian market (as bank deposits) and quite limited construction permits given (in Bucharest), there might be a boom in demand, which would drive up prices. 

 

For an investment, what would be better? Newly built apartments or old ones?

This is very subjective. Demand for renting is higher for newly built properties. However, location remains the most important.

 

What would be better: a middle-class flat, a flat in Spain, or somewhere with a warmer climate?

Again, this is very subjective. Think about who’s going to take care of the management of the property. If it’s you, then the property needs to be somewhere local and easily accessible. Also, will it be a long-term rental (tenants) or a short-term rental (Airbnb)? It’s important to take some time and really dive into the numbers and the profit each investment would make.


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