½ûÂþÌìÌÃ

@Boris-Gleb

To get a credible answer, you probably need to take professional advice from a lawyer/accountant on the pros and cons of the two options.

My guess is that personal names is the easy/quick/cheap option, but that having a company might give more flexibility if you're running a true business, and want to expense a bunch of stuff (salaries for the principals, company car, company pension, etc.).

The latter would therefore seem to be more applicable if you envisage a portfolio of 20-30 properties, and have your sights set on being Varna's latest slumlord exploiting destitute Ukrainians. :-) If this is just for 2 or 3 properties then the easy/quick/cheap option would seem to be rather attractive.

Also, the default situation for utility bills (water, electricity, etc.) is that companies are charged the business rate. This might be the same, but it could be higher, or much higher (e.g. electricity). I believe there are exceptions (e.g. foreigners owning their country house via a company due to non-EU ownership rules), but I don't know the rules. This issue alone would make me very inclined towards the easy/quick/cheap option.

Other significant advantages of companies include limited liability and potentially some privacy of property ownership. But these don't seem very relevant to a retired couple holding 2 or 3 apartments.

For personal holdings, there are very simple and clear rules for tax treatment of rental income (and your allowances) and capital gains (if you should decide to sell later). This appeals to me, as I am a bear of very little brain.

You're not going to get much ROI here these days, I'm afraid.  Now's probably a good time to launder money, but if you're looking to just make some, you need to do your sums VERY carefully...

As my wife is wont to repeat, Bulgaria isn't a country with a real legal system, so tread cautiously!

@gwynj

Thanks for advice, I agree that anyway little ROI is be expected, but comparing return given by bank deposits in Bulgaria, to reach 2,5% to 3,5% rent is better than almost nothing. Since we are commuting to homes in different countries and therefore traveling a lot, main question concerns reliability of Bulgarian tenants to pay rent regularly on time and I don’t trust property agents who can do the job. Whatever investment chosen, there is always a part of uncertainty.

@Boris-Gleb

Sticking it in a bank account gets very little return, and will depreciate in real terms. That's one of the worst possible options, I reckon. I have a chunk of my savings in a brokerage account with a bunch of Blue Chip dividend stocks (in UK, Europe, USA). There are some very solid companies out there paying 2%-6%, and this is a no-hassle option, and has a lot to commend it (including being fairly inflation-proof). But I take a long-term view and just let them sit there. (I choose to automatically re-invest the dividends, but you can take out the cash if you want the income.)

As long as you're paying cash (not getting a mortgage), I don't think Bulgarian city (Sofia, Plovdiv, Varna, Burgas) apartments have much downside. In particular, "holding costs" (property tax, utilities, monthly maintenance) are very low here, so you won't go broke if the apartment sits empty for a year. I've got several, and I think it's a good option for a chunk of your secret stash. Even without a rental income, I feel pretty confident about Bulgaria's long-term property health and the prospects for a modest capital gain in a few years (tax free, as long as you hold it 3 years, and only sell one in any particular year). And, actually, I'm still a fan of Bansko where you can get very nice studios for a lot less than the big cities, and Bansko is a lovely, very livable small town. I'd far prefer to live there than pretty much ANYWHERE else in Bulgaria where you could find a cheap 30k, (probably panel) apartment.

It's not perfect, and it does need a bit work by you, but it's nowhere near as bad as some folks make out. Of course, I wouldn't put ALL my money into Bulgarian real estate, but if you're living here a decent chunk seems plausible to me. It's also very incremental, so you don't need to splash out and buy 10 in one go. Just find yourself a nice little studio and start with that and see how it goes. Then you can tell US whether it's good, or a right pain in the proverbial. :-)

@gwynj

Mainly sharing your point of view, although some doubts about Bansko, which remains a kind of narrow market. I use as well to invest in blue ships serving good dividends like some internal banks or aircraft industry. By the way I recommend Trade Republic, German internet broker located in Berlin. Cheap transaction rates, good panel to US stocks, options, funds and so on… and on top of that they’re paying interest on cash (up to 50 K cash)  at BCE rate refund on monthly basis.

Hello,

Buy as private owners and buy in Sofia. Also seek advice from accountant before you do anything (if you do not have a good accountant I can connect you with such.)

@Boris-Gleb

I think real estate investment in Bulgaria is still a right choice with huge potential. Just make a good research.

Think about a good property not only as a tool which you will give you some % ROI, bu5 as a stable place where you can save your money. Stocks and bonds always go up and down, companies disappear, but your wisely chosen propery will stay for decades even more.

As a professional, I would recommend about using a company when you are buying a property, especially if there is a VAT in the price. Don't worry about the price of the electricity- the parties of electricity always can be changed in the name of the Tenant or someone else.

I hope I was helpful.

Property will certainly "stay for decades" and, given the current - and in my view, vastly overinflated yet again - prices that's a good thing.  ROI is minimal-to-nonexistent at the moment, and the current property bubble is almost certain to burst yet again, so if you invest in rental property at the moment you'll have to hang on to it for quite some time if you don't want to take a financial hammering.  The prospective increase in long-term resale value is the only saving grace here but buying at the top of the market is a mug's game, unless you're happy to have your money tied up while the market drops and then reinflates several years down the line...

Watch out for the usual shenanigans that "investors" get up to here: bribes paid to municipal surveyors to approve projects which don't meet legal requirements, or issue Act 16 for non-compliant buildings; construction companies sold off to straw men once a project is completed in order to avoid liability for any warranties et al; maintenance companies which charge extortionate fees while providing few or no services/renting out apartments without informing the owners and pocketing the payments....and plenty more "tricks of the trade" 😱

@JimJ

I see you're a skeptic. But what should he/we do instead? :-)

ROI (gross rent vs purchase price) is about 4%-5% in the main Bulgarian cities. London ROI is about 2.5%, and a fancy London apartment will cost several times what an equivalent Sofia apartment would. (Of course, net ROI, after expenses, will be even lower.)

That's just rental ROI. In the last couple of years, we've experienced around 10% (inflation-adjusted) property inflation too. Is 10% a bubble-bursting over-inflation? I don't know, but certainly London is also about 10% this year.

Separately, I believe the Bulgarian banks are offering up to 95% mortgages at around 2% interest. That, together with the above property price growth, suggests that there will continue to be plenty of eager Bulgarian buyers, even if we prefer to sit on the sidelines! :-)

Interestingly, Bulgaria's total mortgage debt to GDP ratio is a teeny-weeny 10%. Most EU countries are way over 50% (and UK and Switzerland are over 100%). The US mortgage debt ballooned to nearly 75% of GDP before The Crash. There is a similar story with government debt to GDP where Bulgaria is still down around 20%, while plenty of countries (e.g. UK, USA, Greece) are over 100%. Both metrics suggest that Bulgaria and its people have plenty of borrowing they can do before it looks silly.

@gwynj

When looking at mortgage debt figures, you have to factor in the effect of the very healthy "Bank of Mum & Dad" sector here.  Many younger people borrow a large percentage/all of the cost of purchasing a property from family or friends; others simply play a waiting game of renting until an anticipated property inheritance arrives.

I have several rental properties in Sofia, all luckily acquired at well below the going market rate for the particular time, but even so, the only thing that makes it a worthwhile venture is factoring in the long-term increase in their resale value.  Pro rata, I make considerably more from my Premium Bonds than the properties, even taking into account the effect of inflation on the original stake.  I'm currently in the process of closing a deal on another apartment in the centre; as luck would have it, it's costing me 50% of its current market value but even so I won't be retiring to Monaco on the rental income, especially after the remodelling I've got in mind for it.  Frankly, it'll take several years to even start showing a profit - and that's assuming the bubble doesn't burst in the meantime!

@JimJ

That's a slightly more nuanced take on your property view as your previous posts sound more like a very definitive assertion that property investment is for suckers, don't touch it with a barge-pole! :-) It seems that you personally have property investment in Bulgaria, and your concern (very wisely) is about buying the right property, in the right place, at the right price... and your frustration with the low yield.

Which I'd totally agree with. Property is not a high-yield investment. It's a small, slow and steady yield, with the bonus of being pretty secure (relative to a couple of hundred grand in a bank), and, generally, fairly inflation-proof. I don't think it's something to chuck all your money into, but it's seems entirely plausible to have a small chunk of your net worth in a small portfolio of rental properties (or even non-rental investment properties, in some cases).

Your negative perspective might also be influenced by your views on profits and premium bonds. The rental income is not profit, it's the yield on your investment. It's very misleading to discuss your upfront costs (purchase, renovation) relative to the 10 or 20 years needed before your total stream of rental income has finally exceeded your costs! And, yes, such income is low, so you can't expect one apartment to fund a wealthy retirement to Burgas, let alone Monaco. If you have 10 apartments in central London, then it might be a different story.

Profit-wise, the true picture is that, as such a frugal shopper, if you buy now at 50% of market, you've already, arguably, made a profit... it's just an unrealized one. It's perfectly possible to make a profit just by spotting a bargain. That remains the case, even if you invest more to remodel the apartment. Yes, your investment is larger (renovation is a capital cost), but, presumably, your fancy new pad is worth substantially more and will command a higher rent. If you don't go overboard, I'd expect your remodeling to increase the apartment's value at least as much as it cost you. In other words, contrary to your assertion, you've made an (unrealized) profit from day one... which likely increases following a tasteful (but cost-efficient) remodel. And you can choose to realize your profit whenever you want. (However, of course, if you sell during a market downturn your realized profit might be reduced, or even wiped out completely.)

Then you completely confuse me by comparing property with Premium Bonds. The only Premium Bonds I know are the British Government ones, which is basically a savings bond lottery. They're secure as they're government-backed. And you're not gambling with your entire stake (only the potential interest) so you can enjoy the excitement of (maybe) winning the lottery without going broke. My dear old mum loved them, and they're very popular as a cheap thrill. But other than that, they are a horrible investment option! I doubt the prize pool is more than 4%, so you'd have to be the luckiest expat in the world to make much more than that, each year. Most folks, with average luck, are probably getting an annual yield (interest equivalent in  total prizes) from zero to 1% or so. Plus, they're not index-linked, so I'm not protected against inflation, and my Premium Bonds holding would be devaluing each year (my tiny prize haul minus that year's inflation).

In comparison, one would would have to make a terrible property investment to only get 1% rental yield. Most ordinary folks wouldn't buy such a property if the market price vs the market rent was that depressing. (Rich folks might like low-yield properties in Manhattan and Montecito and Knightsbridge as a quick and easy way to park a few million, very safely.) Most of us would be aiming for at least 4%, maybe even higher. If your Sofia apartment is a massive bargain, then your rental yield should definitely be higher, maybe 6-8%. Otherwise, the numbers aren't making any sense (as market rent is based on market value, after renovation, not what you paid). In addition, property, typically, is inflation protected, as housing prices tend to rise faster than inflation. Indeed, the last few years in Bulgaria have probably seen property inflation of around 10% in REAL terms (i.e. inflation-adjusted).

Overall, you have 10% (real property inflation) vs -4% ish (inflation-adjusted real premium bond yield). Which is a massive difference already, without even adding in the few percent (4 ish for us, 7 ish for your bargain buy) rental yield. Which is why, as you'd expect, most Bulgarians would prefer to invest in property rather than Premium Bonds. :-)

@gwynj

Great post.

I think if you only have one property to rent and expect maybe some return to offset your costs and maybe a small return on your investment then your expectations are not too high.

I remember coming to BG back in 2005 and looking at the investment opportunity at the coast, but even then I could see many rental properties that were not let, add to the fact that the season here is very short I felt that it was not an investment I would make, some say the property value will rise, which is true, but you still have to sell it to realise that profit.

We know someone who invested 250K euros in a villa in Spain, the rental covers their running costs and they have a holiday home they use when there are no renters.

One thing not mentioned is tax, obviously if you are making money someone will want their bit