Buying an apartment for investment. Is that even a good idea?

Housing prices are rising, but the demand for them is still high. Prague will soon grow housing for a quarter of a million people — it is planned 116,000 apartments in a total of 752 projects. Although the pandemic has slightly affected the real estate market, it seems that everything returns again until normal to and interest in apartments will keep rising. Can you say that buying an apartment for investment is always a good idea, or is there a catch?

Buying an apartment is generally a less risky investment. It usually makes sense for those who are not exactly interested in active investing and are only looking for their own housing. Among Czechs, the opinion prevails that it is better to pay off the mortgage on your own housing than to pay “into the pocket of a stranger”. It's simple math. After paying off the mortgage, the property will remain for me, I can even playfully earn on it if I sell a repaid apartment or apartment with a mortgage to someone else. But when I leave the lease, I will only be left deep in my pocket and I will be looking for another rental apartment.

With current low mortgage rates, there is often almost no difference between mortgage payment and rent. More than half of Czechs live in their own home, even though it looks like the post-communist generation no longer clings to their own housing as much.

Perhaps you are one of the luckier ones who have inherited their own housing, have generous parents or excel at work and can afford to buy an apartment for their own living. But what to think about when you have your own housing taken care of and do you want to buy your first apartment on an investment?
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10 or 20% to start and then break the piggy bank

If you don't have cash at hand, you'll find the best financing. A smart financial advisor may be able to conjure up a “100% mortgage” for you. A loan from a building savings bank or a consumer loan from another bank is combined with 80 or 90% of the mortgage. But the road to such a solution is, to say the least, thorny, and with two loans at the neck, one is still breathing a little worse. Much more often, apartments are financed with 80 or 90% mortgages, but for which you have to pay the rest of the price of the apartment from your own resources. If you are buying a new building, you are also waiting for the purchase of a kitchen unit, which is usually not in the project standards. For an older apartment, you will not be deprived of minor, but sometimes even larger repairs and modifications. You will have to put up with the fact that with the purchase of the apartment itself, it usually does not end there.
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Apartment prices rise, but with them so do maintenance costs

For older homes, you can avoid higher maintenance costs. They save on insulation, replacement of windows, repair of the roof or facade. The lower purchase price of apartments in older homes is so often bought out by fees that increase over time. You have to count on the fact that having an apartment costs something. When you fail to rent it right away or have a shortfall in your rent, the fees to the repair fund go straight out of your pocket. Therefore, it is important to take them into account in the financial plan. It is best to think about this before the purchase itself and not be surprised by it.
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Pataly with tenants, cooperative and SVJ

You bought the apartment, everything is repaired and ready for the tenant. Now you can handle everything with the left back. Or not?

Photographing, posting of advertisements, responses to interested parties, tours and contracts. Transfer protocols, security deposit, energy transcription and risk of unavailability of the apartment. These are all things that don't faze you. A real estate agent can solve something for you, but you will still avoid a few face-to-face meetings. The icing on the cake is usually the termination of the lease agreement and the departure of the tenant, after which you can discover the apartment in a desolate state. Dirty walls, scratched floors, ruined appliances in the kitchen. And what if the tenant stops paying? Disputes with tenants are quite common and are resolved in a complex way. Of course, not returning the bail can be one way to compensate for the damage, on the other hand, the bail may not cover the damage caused to you. Due to repairs, the rent will be interrupted for a month or two, and your costs will be a bit higher.

Owning an apartment often means an obligation to attend meetings of the cooperative or community of owners. In addition to money, taking care of the apartment costs you time, whether the one you physically spend taking care of the apartment and the things associated with it, or the one during which you think, plan, phone and arrange in charge of the apartment. Managing an investment apartment simply swallows even dozens of hours a year. Try to compare your income from the apartment with your hourly rate. Does it pay off, or does it make sense to spend a few hours more at work?
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Try it a lot

Buying an apartment for an investment can mean a lot of worries. It's not for everyone, you have to enjoy it. But what if you don't enjoy it or it's just not worth the effort? Real estate is an interesting and fairly stable investment opportunity and it would be a shame to throw flint in the rye. For example, in larger cities, external companies will help you with the management of an investment apartment. They take a share of the rent for their services and you don't have to worry about anything.

But that's not all. It is worth exploring even lesser-known ways to invest in real estate. You don't always have to take out a loan and look for tenants. There are various real estate trusts that buy real estate into their portfolio and allow you to invest in them carefree and flexibly.

One of them is Investown, the fastest growing Czech platform for mass financing of real estate projects. In the application, you select apartments, houses or commercial properties in a specific location, invest from 500 CZK and profit from it for the duration of the investment (usually 12-60 months). The appreciation starts at 7% per year. You can also sell the investment to ten thousand other users and later even increase its price.