An active real estate market and favourable financing conditions have made an increasing number of people think about rental investments. It’s no surprise, since an apartment purchased for rental is both a long-term investment and an opportunity to create a passive income stream.
Below, Tõnu Toompark (TT), one of the leading real estate experts in Estonia, provides seven aspects to take into account when purchasing an apartment for rental, and Marko Bäärs (MB), a member of board at Perton Ehitus, addresses these issues regarding his own ongoing development project in Kalamaja, Arte Galeriimaja, located next to the Creative City at Telliskivi 49.
TT: Location is what determines the value of the real estate and the attractiveness of a rental apartment in the eyes of the potential tenant. Location can be about social infrastructure, i.e.,. nearby shopping centres and service providers, or other positive attributes. One aspect is the availability of public transport.
MB: Arte Galeriimaja essentially faces the Telliskivi creative city. This makes the location very attractive – it’s an area full of life from morning to night, with services, shops and restaurants. The Balti Jaama Turg, relatively new, but very popular, is only five-minute walk away and groceries are available even closer to home. Baltic Station also provides excellent access to train travel and congestion-free trams, one of the best options for moving around the city.
2) Technical quality
TT: When buying a new apartment for renting, it is important to consider the real estate developer and whether they offer a quality product, to avoid immediate problems with the rental. Quality can be assessed with a careful inspection of the apartment and due diligence in researching complaints filed against the developer online.
MB: Perton Ehitus has been active for past 12 years. We’ve survived the highs and lows of the real estate market, and demonstrated ourselves to be trustworthy partners. The quality of our products is a priority, and Creditinfo Eesti AS has recognised Perton Ehitus with the Successful Estonian Company with AA or A rating certificate, giving us external validation as reliable.
3) Apartment association operation
Rental investors often forget to pay sufficient attention to the quality of the apartment association operation. For a rental investor, it is important that the association has a functioning management, meaning that the management effectively addresses problems ranging from the parking arrangements to changing lightbulbs and keeping the nighttime peace.
MB: We contract with a real estate management company for all of our projects upon completion and Arte Galeriimaja is no exception. As soon as the building is completed, the management company will begin active management and the tenants will never be left alone with their concerns. To make resident life as convenient as possible, we’ve even looked into well-rated cleaning, laundry and handyman service providers and provided their contact information for Arte Galeriimaja occupants.
4) Apartment size and the number of rooms
TT: The size of the rental apartment should also be considered carefully. Often, tenants prefer smaller apartments for lower rent and heating expenses.
Apartment rent depends less on the square meters than on the number of rooms. For same area, rent is higher for an apartment with more rooms.
MB: Arte Galeriimaja features both one and two room apartments. Currently, fewer than a third of the apartments are still available, but all of those still available have two rooms. As Tõnu mentions, two-room apartments generate more rent, so at around 41–43 m2, these apartments can be expected to fetch higher market rents than one-rooms of a similar size.
5) Rentals and returns on investment
TT: When buying a rental apartment, the investor has to keep in mind potential rental rates for the apartment. Both the costs and potential income are part of the overall consideration in the profitability of the space. Smaller apartments typically have higher returns than larger ones.
MB: To make the calculation easier for our customers, Perton Ehitus contracted with two independent bureaus for potential rental rate information on our apartments and we are happy to provide this information to investors. Customer satisfaction is our highest priority in this area.
6) Market liquidity
TT: In addition to rent, it is also worthwhile to consider market liquidity- the time it takes to successfully rent out the apartment. Smaller and cheaper apartments, with monthly rents less than €500, are usually appealing to a wide range of people and turn over very quickly.
MB: Our two-room apartments at Arte Galeriimaja have a variety of target markets– young people starting out with their independent lives, new couples moving in together, well-off singles not looking for a lot of space and not interested in settling down yet, and parties who have recently divorced, moving out of jointly-owned spaces and looking for a place to start over. The wide-ranging appeal of Arte Galeriimaja means that owners need never worry about finding a good tenant.
7) Added value
TT: Real estate can also come with added value. For new apartments, for example, added value can include a construction warranty longer than the usual two years; modern smart solutions, including entrance systems; lower heating expenses due heat return, furniture included with the purchase or rental management services.
Added value comes at a cost, but also makes the life of a rental investor easier and saves them the trouble of dealing directly with these issues.
MB: At Arte Galeriimaja, we recognise the speed of modern life and we have facilitated convenience, like making cleaning, laundry and handyman services as readily accessible as possible. At the investor’s request, we also offer smart door solutions for apartments, enabling keyless remote entry for tenants or service providers. Kitchen and appliance assembly, as well as entrance hall set-up are available, something every investor can appreciate.. We’ve also paid attention to temperature control expenses and chosen heat return ventilation systems for the building. On a hot summer day, cooled air can be blown in, helping to lower the temperatures, and most apartments have balconies.
Tõnu Toompark and Marko Bäärs agree that no one should jump into rental investments. However, if an investor keeps these seven aspects of the process in mind, the decision should become a whole lot clearer.