Preliminary business plan «Real estate of Hungary».
This report will include the following items:
- General assessment of economic situation and prospects
- Business plan
- Legal procedures
Hungary is an underestimated country from viewpoint of tourism as well as real estate. Many confuse Budapest with Bucharest through the lack of knowledge, and believe that Hungary is the Balkans.
- opportunity to get to the market as one of the first.
- To get a high quality of product at a very beneficial price.
- To provide oneself with prospective project in eurozone.
- To get a good profit after the crisis.
There is also a disadvantage – the project will not be quick as lightning, it will take time for development.
I’ve conducted the following study that is based on the opinion of experts-realtors, lawyers, Internet.
Most liquid flats are small two-room apartments with area from 28 to40 sq.m. I emphasize that not one-room, but just two-room apartments of such small size.
These flats are easily can be granted on long-term lease, short-term lease (they look like a good room in the hotel), it is quicker and easier to sell these flats. Location is the center, only the center and one more time the center. The cost of such apartment in good condition at the center of the city is 40 thousand Euros. I mean under good condition that there is no need of major repairs, maximum cosmetic repairs. However, the same apartment in neglected state can cost 25 thousand Euros. On this basis I make an offer on investing number 1, where there are a lot of troubles, but there is a maximum profit outlet in the final version.
We’ll buy 8 neglected flats at the price of plus or minus 25 thousand, having spent 200 thousand. Plus tax of about 10 thousand. We’ll invest in each flat 10 thousand on reconstruction. And get eight excellent apartments for the budget of 290 thousand Euros. While their market value will be already estimated at 320 thousand (on the basis that such an apartment costs 40 thousand).
That is, we’ll already have the initial earnings at the rate of 10% per cent. In principle, it is possible to try immediately to put on the market and fix profit, but since the main task is a rent, not resale, we’ll proceed to the second stage - furnishing and leasing.
We’ll use the remaining 60 thousand to buy furniture and accessories for our 8 apartments.
Thus, we got each our apartment at 42.5 thousand Euros.
Long-term rent of such apartment simplifies the work and makes earning stable, but very low, because the cost of such rent will not exceed 250 Euros per month or 3,000 thousand per year. This will give about 7% dirty cash, before the payment of taxes and other expenses. Briefly, it’s normal, but not very interesting. I offer the short-term rent. This is rather new phenomenon, not all used to it, nevertheless, the demand on such rent grows up for the following reasons:
- more comfortable atmosphere than in the hotel.
- The area of such apartment exceeds any standard room (standard from 16 to 22)
- The combination of price and quality usually lets to spend the night in such apartment twice cheaper than in the hotel of 4 stars.
However, it is necessary to work very well to make a good occupation. But the modern world permits to find a lot of ways to do it.
First, the popular sites booking.com, easytobook, airbnd.com, gladly cooperate with such private networks. And these sites are viewed by millions of people daily. Secondly, it is possible to create an own website and promote it, thirdly, it is possible to conclude the contracts with the travel agencies for the supply of tourists at a small commission. Briefly, the field of activity is very large. But there is a logical question – what for?
I conduct calculation based again on market research and statistics about occupation of Budapest. By the way, the hotels occupation in 2012 season amounted to 82%. Budapest, in principle, is visited all year round, but, of course the summer as always leads.
Private owners, who rent apartments, take about 40 Euros a day. I also consider such cost adequate and good.
I make calculation very realistic based on 50% per cent occupation. Monthly output will amount to 600 Euros, which is more than two times higher than the long-term lease, but there will be own costs.
- cleaning-up - 50 Euros per month
- household costs -80 Euros per month
- overhead charges- 50 Euros per month
- administrative component - 70 Euros per month.
Thus, we approach to 350 Euros per month from apartment.
4200 thousand a year is 10%. And again, before taxes and possible unforeseen costs.
But here it is possible to talk about 7-8% of net cash. That is, about 25 000 thousand Euros a year in hands from our 8 apartments. Plus there is a possibility of growth of real estate in the next 2-3 years, plus the safety of funds, plus the possibility always to go out of business in a quite short period with a profit.
I consider this business plan realistic and adequate, it does not include any excess profits, but exceeds bank interest, which varies from 3 to 4% of annual in currency.
For example, it is possible to buy not 8 small apartments, but 4 small and two larger, that can be done at a higher class and let to foreigners on a long-term lease. Then the investment portfolio will include a stable and floating income.
Legal procedures give two options:
- To register for oneself or any individual. In Hungary, foreigners have the right to become owners of real estate and to receive certificate of ownership. There are two disadvantages of such purchase – it is necessary to obtain a permit for purchase from the authorities. The procedure has a formal nature, but it takes about 45 days. When it concerns purchase of flat for oneself, there are no problems, but when it concerns a lot of objects, the process can be extended and turned into a headache. Another minus results from the first. Once the application appears on the purchase of a large number of objects, it will be immediately understood that they are for the business and then there is a possibility of either refuse for purchase of over a certain number of objects, or either a request to legalize the activity and pay tax on the rent.
- Option number two is the foundation of the company. In this case there is no necessity of permit, but appear issues on reporting. You are to choose!
The project by itself is good from viewpoint of risk-benefit. Benefit is higher than in the bank, and the risk, perhaps, has the nature of force majeure. The market price is at the bottom and on the market has only the prospect of growth, its going down can be caused only by extraordinary events.
I guess net profit per year at the rate of 7% per cent, and the rising cost of real estate for three years of 15-20%. Total it is possible to get out of the project in three years with a total profit 35%.
Yours faithfully, Igor Goldengur
The report is actual for the period - summer 2012
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