Investing in houses, apartments and flats

During the last years I have gained a lot of interest towards housing investments and how it works.

I bought my first apartment over two years ago and did not even think about it in the investment way but more that I did not want to pay rent and thought it was useful to pay the loan back to the bank instead. Now since two years have passed, I have moved to another house, my old apartment was left without use. I rented it out and it is now paying back the housing loan I have for the apartment. By buying the apartment so to say “ at a good time “ when covid had been reducing the power of buying. I got the apartment in a pretty good price. I have plans to renovate the bathroom , which after that the value of the apartment could be around 15% higher than it was when I bought it. So even tough the loan has been reducing also the value of the apartment has gone up. So eventually after example five years of owning the apartment I could have paid back the loan for 24 000€ with the money of the tenants and after the value rise for the toilet reshuffling I could be looking at another 15 000€ from the  BRRRR (buy, rehab, rent, refinance, repeat) so overall by owning this apartment for five years I could be looking at almost 40K when selling the apartment.

• Buy, rent and hold strategy

The old fashioned way that many of us know. You buy a flat, you take a tenant who pays you monthly which you use then to pay for your mortgage. The value is in the profit of the rent and maybe in value rise that the apartment might have.

• Buy, rehab, rent, refinance and repeat strategy – BRRRR

For this strategy it might be clever to find a flat from an interesting area but the shape of the flat could be lot worse. There might be some old inside materials etc.  so you value the price of the renovation and compare how much it could inflate the value of the flat. By refinancing the value of your property, you get more credits for the bank and can use them for another loan. You must pay a broker to get a new value report which normally costs 100-250€. So if we take an example:

You buy a flat of 50 000€ and you get a loan from the bank for it so you need 30% cash money which is 15 000€ and the rest 35 000€ you get from the bank. You renovate the flat with 10 000€ and now the broker comes to give you a new value proposition. The renovation has lifted the value of your apartment from 50 000€ to 80 000€. This means that with the new value you can get a new loan of 21 000€. So you can use that credit now for another down payment. With 21 000€ credit you can get a new house loan for 50 000€. ( 30% of 50 000€ is 15 000€ )

This way you can build up your empire. But at the moment the banks have stopped to give out more loans based on your credit due to the inflation , war and everything unpleasant going on in the world.

• Buy, renovate and sell strategy – FLIPPING

If you are a handy man , or a woman. It might be easy to buy flats that are in bad shape example from auctions, renovate them and sell them. You must pay 30% income tax from the profit that you have made. Good tips are to have a search robot who will always inform you if your criteria will match. (cheap, ugly and in good location.) Best targets are the ones that are in popular cities and are in very bad shape that nobody wants to be a part of. Remember that with good renovation you can make everything pretty again as long as the financial part of the householding company is okay.

Example from Sijoitusasunnot for flipping:

Flat’s buying price 100.000€

Tax you must pay ( varainsiirtovero ) 2.000€

Renovating the flat  5.000€

Brokers fee  2.500€

all. 109.500€

Selling price after renovation 120.000€ (asking for 125.000€)

Profit made 10.500€

References:

Sijoitusasunnot.com Group Oyj. Read on 2.5.2023. Link: https://sijoitusasunnot.com/asuntosijoittaminen/

Henri Neuvonen, 2017. Read on 2.5.2023. Link: https://sijoitusasunnot.com/blogi-asuntosijoittaminen/asuntojen-flippaus/