Is it true that investing in capital is no longer profitable due to the absurd increases in apartment prices and rents that cannot keep up with them?
— If we look at the largest Polish cities, the profitability rate is quite similar, because the profitability varies between 4 and 5.5 percent. Yes, it is not impressive compared to other investments. But even in times of pandemic, about 50 percent of transactions in the secondary market – and I think more than half in the primary market – were transactions made by investors. In recent years, investing in real estate has been extremely fashionable, in fact, many people still believe that it is an easy way to increase money. Although in fact investing in this market is not very satisfying or easy financially.
It is not?
— We are dealing with a mountain of investment products. When a wave of Ukrainians fled the war, we had an unprecedented situation: apartments were rented out very quickly and at very good prices for owners. This should be made clear. This was a major anomaly in the rental market, which would not happen under normal conditions. Today, many of these apartments are waiting longer for tenants, which jeopardizes their owners’ future investments in real estate.
Let’s say someone has two apartments to rent. And suddenly he has to wait six weeks for a tenant. Or even longer. During that time, he pays taxes and maybe decides to renovate, so his profit is less satisfactory. That’s why many people are wondering if now is a good time to invest in typical rental apartments.
Do you think this is a bad time?
— I usually answer: it depends. It depends on the rental model we choose: long-term, which is actually characterized by a fairly low profitability, short-term, or perhaps we can buy an apartment on the secondary market at a very good price, which we will rent out after the renovation. So we are dealing with different products that can yield different values for the owner.
Kowalski insisted that he wanted to buy the apartment. What should you consider when choosing a property to rent?
— When renting for a long period, it is worth doing a market analysis in advance. And certainly we should not be guided by our own preferences: for example, I lived well in Morena in Gdańsk, so I will buy here. I do not recommend investing in studios, because they are a good apartment for one person, but not for two or three people. It is better to rent two-bedroom apartments.
Landlords’ strategies vary greatly. Tenants certainly pay close attention to the standard, parking space and infrastructure of the area. And indeed, some of these amenities can be found on the primary market and others on the secondary market. In a new housing estate, it is easier to find parking spaces – especially the most sought-after ones, in the underground garage – but the secondary market often benefits from excellent infrastructure, proximity to schools, kindergartens and lots of greenery. We also need to consider which group we are targeting with the apartment. Most often these are students, young people, but increasingly also families with children for whom it is not feasible to buy their own home. Therefore, for many investors, buying a three-bedroom apartment can be a shot in the arm.
What about short-term rental apartments? Are they governed by different laws?
— Statistically, these apartments are smaller – usually one living room with a kitchen and one bedroom. One client will be delighted with a modern complex near the beach, others will prefer to live in an old tenement house right in the center. Here the clients are more diverse: they are both young and middle-aged people, as well as families with children.
By choosing a daily rental in an attractive city such as Gdańsk or Krakow, we will probably earn more.
— There are regions in Poland that are characterized by higher returns, while others are lower. But if I compare it with the profitability of long-term rentals, then by renting daily, we can achieve twice as much. Although there are also places and facilities that will bring even higher profits. At the same time, we have cases of places where short-term rentals have brought very solid rates of return, and at the same time, the abundance of new investments in the area means that the owners’ calendars are no longer completely filled.
Example?
— For example, Gdańsk, where many new investments in central or seaside locations are aimed at short-term rentals. The competition is very high. When deciding on the form of rental, it is better to sit down with a calculator in advance and calculate whether short-term rentals still make sense. I am not saying that they do not exist, but such decisions should be made based on market data.
There is another option: More aparthotels are being built in attractive tourist cities. Can we earn more by buying a property with this type of investment?
— Aparthotels have slightly different rules. Here, the content of the contracts should be carefully analyzed. Sometimes I see advertisements promising incredible returns, and that’s when a warning light should go off, because the devil is in the details. During the first two years, the profitability may be satisfactory, but after that it sometimes becomes much lower. An aparthotel is not the same as an apartment hotel. There are investments that bring a very good return and it is easy to sell such facilities later on the market, but there are operators who are known for the fact that cooperation with them is not ideal. Later, it will be more difficult to get out of such investments because the bad reputation quickly spreads among potential customers.
What is the advantage of such an investment?
— Basically, we signed a contract and we are not interested in anything at all. Neither the layout of this apartment nor its management. We receive reports and receive some money in our account. However, I think that this should not be our first investment. If we want to invest in real estate, it is better to first try out typical long-term rental apartments to get a feel for the market. And see if it is something for us. I often hear that real estate is a hands-off market. And that is complete nonsense, because renting requires time, knowledge and commitment.
According to NBP research, approximately one-third of new facilities will be acquired as an investment in 2023. Who is the average investor?
— Our analysis shows that most of the time, these are people aged between 40 and 50 who buy properties measuring 30 to 40 m². They invest in large cities such as Warsaw, Krakow, Wrocław, Gdańsk. But from a certain point onwards, along with the increase in apartment prices, we also noticed that the percentage of investment purchases in smaller locations began to increase.
What cities are these?
— Lublin, Toruń, Białystok, Olsztyn…
Why there?
— People who buy apartments there often already have a rental property, for example, in their city. And they want to diversify their portfolio. Secondly, entering smaller markets is simply easier in terms of costs. For example, in Toruń we can buy an apartment for rent for PLN 10,000. PLN per square meter, in Warsaw it is more than PLN 16,000. PLN m². And the rates of return on short-term rentals are not that different.
So is it enough to invest in a smaller city?
— There are also some disadvantages. First, it is an unknown market. If we are not rooted in the real estate market of a medium-sized city, for example, it may happen that the apartment that we think is a good choice will be empty for part of the year because the rent is based only on students. In addition, investing in medium-sized cities can be chimerical. It turns out that tenants depend on several of the largest local employers – large factories and plants. If these companies have problems, it may be difficult to find tenants. This problem does not exist in large cities.
What does the data say? Where are the highest returns?
— According to data from the first half of the year, among large cities, Łódź and Katowice have the highest profitability rate – around 6%. In Warsaw, however, it is around 5%. However, the difference of this percentage point is quite significant in the context of the amount invested in the apartment. In Gdańsk, Poznań and Wrocław, on average, we will not exceed 6% with a typical long-term lease. Of course, the profitability can be higher if, for example, we rent out such an apartment by rooms, which is happening more and more often.
Today, our compatriots are increasingly willing to buy apartments for investment in Southern Europe. Does it turn out that foreigners want to invest in Poland?
— We do not conduct detailed analyses of foreign investors, but we see some interesting trends. Germans are increasingly buying apartments in Poland, I think some of them for investment purposes. They choose properties, often in recreational areas: they rent them out for part of the year and relax for part of the year. I also know of cases of Ukrainians who came to Poland before the outbreak of the war and today invest in apartments to rent them out to their compatriots, thus meeting their needs. Citizens of Belarus are also increasingly buying apartments. For now, for my own needs. However, if many of them are representatives of well-paid freelancers, it may happen that they will soon invest their financial surpluses in the real estate market as well.
Some experts say frankly: making money from renting is no longer profitable, investing in real estate will lose its shine. Do you agree with this?
— The real estate market has become a daily occurrence for many people who previously had nothing to do with it. And suddenly these people began to be considered experts in the area, encouraging others to invest in apartments. Those who want to invest their surplus money somewhere are given the false image that the real estate market is the only way to invest their resources and, what is worse, without risks.
Therefore, I believe that many people may soon become disillusioned with this type of herd investment, buying apartments that are too expensive to rent or becoming less satisfied with the rate of return. However, the market will remain attractive for professionals.
In what sense?
— Those who really know the property market can find an investment product that a beginner investor cannot develop. For example, they will see investment potential in houses from the 1970s, which after renovation could make an excellent hostel product. They may see potential in a property that would be of little interest to a typical investor, but after renovation and redesign, could become desirable for those looking for short-term rentals.
The market will become more professional. And I think it will be very necessary for everyone, because it will show that you need to know something about investing in real estate. You can’t approach this market arrogantly in the long term, because it is an investment that may not always be successful.
